-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VbwunKbYzR4A0Pf70hH8ZYiIZjKNgqCmtF6P9jWIRszHW060I741zC1tS6Epqoho AMMXy4Fqyg5DSOycXSMXyw== 0000925263-10-000008.txt : 20100329 0000925263-10-000008.hdr.sgml : 20100329 20100329120358 ACCESSION NUMBER: 0000925263-10-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20091231 FILED AS OF DATE: 20100329 DATE AS OF CHANGE: 20100329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN STANLEY SMITH BARNEY SPECTRUM SELECT LP CENTRAL INDEX KEY: 0000873799 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 133619290 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-19511 FILM NUMBER: 10709781 BUSINESS ADDRESS: STREET 1: 522 FIFTH AVENUE, 13TH FLOOR STREET 2: C/O JEREMY BEAL CITY: NEW YORK STATE: NY ZIP: 10036 BUSINESS PHONE: 212-296-1999 MAIL ADDRESS: STREET 1: 522 FIFTH AVENUE, 13TH FLOOR STREET 2: C/O JEREMY BEAL CITY: NEW YORK STATE: NY ZIP: 10036 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY SPECTRUM SELECT LP DATE OF NAME CHANGE: 20011101 FORMER COMPANY: FORMER CONFORMED NAME: MORGAN STANLEY DEAN WITTER SPECTRUM SELECT LP DATE OF NAME CHANGE: 19990412 FORMER COMPANY: FORMER CONFORMED NAME: DEAN WITTER SPECTRUM SELECT LP DATE OF NAME CHANGE: 19980507 10-K 1 dwsf.htm DWSF 10K dwsf.htm
 
 
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

x           ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009 or

o           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________to__________________

Commission File Number: 0-19511

 
MORGAN STANLEY SMITH BARNEY SPECTRUM SELECT L.P.
  
 
(Exact name of registrant as specified in its charter)
  

 
Delaware
  
13-3619290
 
     State or other jurisdiction of
      incorporation or organization
  
(I.R.S. Employer
Identification No.)
       
Demeter Management LLC
    
522 Fifth Avenue, 13th Floor
    
New York, NY
  
10036
(Address of principal executive offices)
  
(Zip Code)

Registrant’s telephone number, including area code
  
(212) 296-1999
     
Securities registered pursuant to Section 12(b) of the Act:
    
     
Title of each class
  
Name of each exchange
   
On which registered
     
None
  
None
     
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.   Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Registration S-T (§232.405 of this chapter) during the proceeding 12 months (or for such shorter period that the registrant was required to submit and post such files)    Yes o  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.404 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o
Accelerated filer o
Non-accelerated filer x
Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes 0  No T

State the aggregate market value of the Units of Limited Partnership Interest held by non-affiliates of the registrant.  The aggregate market value shall be computed by reference to the price at which Units were sold as of the last business day of the registrant’s most recently completed second fiscal quarter: $470,774,021 at June 30, 2009.

DOCUMENTS INCORPORATED BY REFERENCE
(See Page 1)
 
 
 
 

MORGAN STANLEY SMITH BARNEY SPECTRUM SELECT L.P.
(formerly, Morgan Stanley Spectrum Select L.P.)
INDEX TO ANNUAL REPORT ON FORM 10-K
December 31, 2009


DOCUMENTS INCORPORATED BY REFERENCE
……………………………………………………………
1

Part I.
    
     
Item 1.
Business
2-5
     
Item 1A.
Risk Factors
5-6
     
Item 1B.
Unresolved Staff Comments
6
     
Item 2.
Properties
6
     
Item 3.
Legal Proceedings
7
     
Item 4.
(Removed and Reserved)
7
     
     
Part II.
    
     
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters  and Issuer Purchases of Equity Securities
8
     
Item 6.
Selected Financial Data
9
     
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
10-31
     
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
31-43
     
Item 8.
Financial Statements and Supplementary Data
44
     
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
44
     
Item 9A.
Controls and Procedures
45-47
     
Item  9A(T).
Controls and Procedures
47-48
     
Item 9B.
Other Information
48
     
     
Part III.
    
     
Item 10.
Directors, Executive Officers and Corporate Governance
49-55
     
Item 11.
Executive Compensation
55
     
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
56
     
Item 13.
Certain Relationships and Related Transactions, and Director Independence
56
     
Item 14.
Principal Accountant Fees and Services
56-57
     
Part IV.
    
     
Item 15.
Exhibits, Financial Statement Schedules
58



 
 
 

DOCUMENTS INCORPORATED BY REFERENCE


Portions of the following documents are incorporated by reference as follows:



     Documents Incorporated                                                                                                                                         Part of Form 10-K
 
 
Partnership’s Prospectus dated May 1, 2008                                                                                                                      I

Partnership’s Supplement to the Prospectus dated September 17,
                 2008                                                                                                                            &# 160;                                                                I

Annual Report to Morgan Stanley Smith Barney Spectrum Series
 Limited Partners for the year ended December 31, 2009                                                                                         II, III, and IV































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PART I

Item 1.  BUSINESS

(a)  General Development of Business. Morgan Stanley Smith Barney Spectrum Select L.P. (formerly, Morgan Stanley Spectrum Select L.P.) (the “Partnership”) is a Delaware limited partnership organized in 1991 to engage primarily in the speculative trading of futures contracts, options on futures and forward contracts, and forward contracts on physical commodities and other commodity interests, including, but not limited to, foreign currencies, financial instruments, metals, energy, and agricultural products (collectively, “Futures Interest”).  The Partnership commenced trading operations on August 1, 1991.  The Partnership is one of the Morgan Stanley Smith Barney Spectrum series of funds, comprised of the Partnership, M organ Stanley Smith Barney Spectrum Currency L.P., Morgan Stanley Smith Barney Spectrum Global Balanced L.P., Morgan Stanley Smith Barney Spectrum Strategic L.P., and Morgan Stanley Smith Barney Spectrum Technical L.P. (collectively, the “Spectrum Series”).  Additionally, after the Spectrum Series’ November 30, 2008 monthly close, Demeter Management LLC (“Demeter”), the general partner of the Partnership, no longer offers for purchase or exchange units of limited partnership interest (“Unit(s)”) in the Spectrum Series.

The commodity brokers are Morgan Stanley & Co. Incorporated (“MS&Co.”) and Morgan Stanley & Co. International plc (“MSIP”).  MS&Co. also acts as the counterparty on all trading of foreign currency forward contracts.  Morgan Stanley Capital Group Inc. (“MSCG”) acts as the counterparty on all trading of options on foreign currency forward contracts.  MSIP serves as the commodity broker for trades on the London Metal Exchange.  MS&Co., MSIP, and MSCG are wholly-owned subsidiaries of

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Morgan Stanley.  The trading advisors to the Partnership are EMC Capital Management, Inc., Northfield Trading L.P., Rabar Market Research, Inc., Sunrise Capital Management, Inc., Graham Capital Management, L.P. (“Graham”), and Altis Partners (Jersey) Limited (each individually, a “Trading Advisor”, or collectively, the “Trading Advisors”).

On April 30, 2009, Demeter Management Corporation was converted from a Delaware corporation to a Delaware limited liability company and changed its name to Demeter Management LLC.  Demeter is a wholly-owned subsidiary of Morgan Stanley Smith Barney Holdings LLC, which is majority-owned indirectly by Morgan Stanley and minority-owned indirectly by Citigroup Inc. (“Citigroup”).

Demeter does not believe that the change in its ownership had a material impact on the Partnership’s limited partners.  At all times Demeter served as the general partner of the Partnership and it continues to do so.  The change in ownership occurred pursuant to the transaction in which Morgan Stanley and Citigroup agreed to combine the Global Wealth Management Group of Morgan Stanley and the Smith Barney division of Citigroup Global Markets Inc. into a new joint venture.  The transaction closed on June 1, 2009.

Prior to June 1, 2009, Demeter was a wholly-owned subsidiary of Morgan Stanley.

Effective September 29, 2009, Demeter changed the name of Morgan Stanley Spectrum Select L.P. to Morgan Stanley Smith Barney Spectrum Select L.P.  The name change does not have any impact on the operation of the Partnership or its limited partners.
- 3 -

 
 
 

The Partnership began the year at a net asset value per Unit of $40.80 and returned (7.0)% to $37.96 per Unit on December 31, 2009.  For a more detailed description of the Partnership's business see        subparagraph (c).


(b)  Financial Information about Segments.  For financial information reporting purposes, the Partnership is deemed to engage in one industry segment, the speculative trading of futures, forwards and options on such contracts.  The relevant financial information is presented in Items 6 and 8.

(c)  Narrative Description of Business.  The Partnership is in the business of speculative trading of futures, forwards and options pursuant to trading instructions provided by the Trading Advisors. For a detailed description of the different facets of the Partnership's business, see those portions of the Partnership's prospectus, dated May 1, 2008 (the “Prospectus”), and the Partnership’s supplement to the Prospectus dated September 17, 2008, (the “Supplement”), incorporated by reference in this Form 10-K, set forth below.
Facets of Business
  
   
1. Summary
1. “Summary” (Pages 1-10 of the Prospectus and Page S-1 of the Supplement).
   
2. Futures, Options, and Forwards Markets
2. “The Futures, Options, and Forwards Markets” (Pages 198-202 of the Prospectus).
   
3. Partnership’s Trading Arrangements and Policies
3. “Use of Proceeds” (Pages 31-33 of the Prospectus).  “The Trading Advisors” (Pages 83-172 of the Prospectus and Pages S-2 – S-4 of
 
the Supplement).
   
4. Management of the Partnership
    4. “The Trading Advisors – Management Agreements” – (Page 83 of the Prospectus).  “The General Partner” (Pages 79-82 of the Prospectus and Page S-2 of the Supplement). “The Commodity Brokers” (Pages 174-175 of the Prospectus) and “The Limited Partnership Agreements” (Pages 180-183 of the Prospectus).
   
5. Taxation of the Partnership’s Limited Partners
5. “Material Federal Income Tax Considerations” and “State and Local Income Tax Aspects” (Pages 190-196 of the Prospectus and pages S-4 – S-5 of the Supplement).
- 4 -

 
 
 

(d)  Financial Information about Geographic Areas.  The Partnership has not engaged in any operations in non-U.S. countries; however, the Partnership (through the commodity brokers) enters into forward contract transactions where non-U.S. banks are the contracting party and trades futures, forwards, and options on non-U.S. exchanges.


(e)  Available Information.  The Partnership files an annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports with the Securities and Exchange Commission (“SEC”).  You may read and copy any document filed by the Partnership at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549.  Please call the SEC at 1-800-SEC-0330 for information on the Public Reference Room.  The Partnership does not maintain an internet website, however, the Partnership’s SEC filings are available to the public from the EDGAR database on the SEC’s website at “http://www.sec.gov”.  The Partnership’s CI K number is 0000873799.

Item 1A.  RISK FACTORS
The following risk factors contain forward-looking statements within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).  All quantitative disclosures in “Quantifying the Partnership’s Trading Value at Risk” in Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.  The qualitative disclosures, except for (A) those disclosures that are statements of historical fact and

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(B) the descriptions of how the Partnership manages its primary market risk exposure, in the  “Qualitative Disclosure Regarding Primary Trading Risk Exposures” in Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” are deemed to be forward-looking statements for purposes of the safe harbor.

Current limited partners of the Partnership are advised that effective December 1, 2008, Demeter no longer accepts any subscriptions for investments in the Partnership or any exchanges from other Spectrum Series partnerships for Units of the Partnership.  Current limited partners of the Partnership will continue to be able to redeem Units of the Partnership.

The Partnership is in the business of speculative trading of futures, forwards, and options on such contracts.  For a detailed description of the risks that may affect the business of the Partnership or the limited partnership interests offered by the Partnership, see the discussion of the risk factors as set forth in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 7A. “Quantitative and Qualitative Disclosures About Market Risk”

Item 1B.  UNRESOLVED STAFF COMMENTS
Not applicable.

Item 2.  PROPERTIES
The Partnership’s executive and administrative offices are located within the offices of MS&Co.  The MS&Co. offices utilized by the Partnership are located at 522 Fifth Avenue, 13th Floor, New York, NY 10036.
- 6 -

 
 
 

Item 3.  LEGAL PROCEEDINGS
None.

Item 4.  (REMOVED AND RESERVED)







































- 7 -

 
 
 

PART II

Item 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES


(a)  Market Information.  There is no established public trading market for Units of the Partnership.

(b)  Holders.  The number of holders of Units at December 31, 2009, was approximately 28,875.

(c)  Distributions. No distributions have been made by the Partnership since it commenced trading operations on August 1, 1991.  Demeter has sole discretion to decide what distributions, if any, shall be made to investors in the Partnership.  Demeter currently does not intend to make any distributions of the Partnership’s profits.

(d)  Underwriter.  The managing underwriter for the Partnership was MS&Co.

(e)  Use of Proceeds.  All Units remaining unsold after the November 30, 2008 closing were deregistered with the SEC effective January 23, 2009.










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Item 6.  SELECTED FINANCIAL DATA (in dollars)







 
 
    For the Years Ended December 31,
  

 
2009
2008
2007
2006
2005
           
Total Trading Results
          
including interest income
        2,428,936
     218,426,776
                 84,240,950
            79,402,767
         23,039,815
           
Net Income (Loss)
(40,555,841)
     153,644,867
               37,920,143
            31,117,372
            (29,214,513)
           
Net Income (Loss) Per
          
Unit (Limited & General
          
Partners)
   (2.84)
      9.56
2.18
1.61
(1.43)
           
Total Assets
     471,841,125
     636,444,887
533,911,805
555,435,805
550,467,763
           
Total Limited Partners’
          
Capital
     459,902,047
     599,790,920
517,496,723
537,667,844
527,198,790
           
Net Asset Value Per Unit
37.96  
40.80               
31.24
29.06
 27.45

























- 9 -



 
 
 

Item 7.
  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND RESULTS OF OPERATIONS

Liquidity.  The Partnership deposits its assets with MS&Co. and MSIP as commodity brokers in separate futures, forward and options trading accounts established for each Trading Advisor.  Such assets are used as margin to engage in trading and may be used as margin solely for the Partnership’s trading.  The assets are held in either non-interest bearing bank accounts or in securities and instruments permitted by the Commodity Futures Trading Commission for investment of customer segregated or secured funds.  Since the Partnership’s sole purpose is to trade in futures, forwards and options, it is expected that the Partnership will continue to own such liquid assets for margin purposes.

The Partnership’s investment in futures, forwards and options may, from time to time, be illiquid.  Most U.S. futures exchanges limit fluctuations in prices during a single day by regulations referred to as “daily price fluctuations limits” or “daily limits”.  Trades may not be executed at prices beyond the daily limit.  If the price for a particular futures or options contract has increased or decreased by an amount equal to the daily limit, positions in that futures or options contract can neither be taken nor liquidated unless traders are willing to effect trades at or within the limit.  Futures prices have occasionally moved the daily limit for several consecutive days with little or no trading.  These market conditions could prevent the Partnership fr om promptly liquidating its futures or options contracts and result in restrictions on redemptions.



- 10 -

 
 
 

There is no limitation on daily price moves in trading forward contracts on foreign currencies.  The markets for some world currencies have low trading volume and are illiquid, which may prevent the Partnership from trading in potentially profitable markets or prevent the Partnership from promptly liquidating unfavorable positions in such markets, subjecting it to substantial losses.  Either of these market conditions could result in restrictions on redemptions.  For the periods covered by this report, illiquidity has not materially affected the Partnership’s assets.

There are no known material trends, demands, commitments, events, or uncertainties at the present time that are reasonably likely to result in the Partnership’s liquidity increasing or decreasing in any material way.

Capital Resources.  The Partnership does not have, nor does it expect to have, any capital assets.  Redemptions of Units in the future will affect the amount of funds available for investments in futures, forwards and options in subsequent periods.  It is not possible to estimate the amount, and therefore the impact, of future outflows of Units.  Effective December 1, 2008, Demeter no longer accepts any subscriptions for Units of the Partnership or any exchanges from other Spectrum Series partnerships for Units of the Partnership.

There are no known material trends, favorable or unfavorable, that would affect, nor any expected material changes to, the Partnership’s capital resource arrangements at the present time.



- 11 -

 
 
 

Results of Operations
General.  The Partnership’s results depend on the Trading Advisors and the ability of each Trading Advisor’s trading program to take advantage of price movements in the futures, forwards and options markets.  The following presents a summary of the Partnership’s operations for each of the three years in the period ended December 31, 2009, and a general discussion of its trading activities during each period.  It is important to note, however, that the Trading Advisors trade in various markets at different times and that prior activity in a particular market does not mean that such market will be actively traded by the Trading Advisors or will be profitable in the future.  Consequently, the results of operations of the Partnership are difficult to discuss other than in the context of the Trading Advisors’ trading activities on behalf of the Partnership during the period in question.  Past performance is no guarantee of future results.

The Partnership’s results of operations set forth in the financial statements are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), which require the use of certain accounting policies that affect the amounts reported in these financial statements, including the following:  the contracts the Partnership trades are accounted for on a trade-date basis and marked to market on a daily basis. The difference between their original contract value and market value is recorded on the Statements of Operations as “Net change in unrealized trading profit (loss)” for open (unrealized) contracts, and recorded as “Realized trading profit (loss)” when open positions are closed out.  The sum of these amounts constitutes the Partnership’s trading resul ts.  The market value of a futures contract is the settlement price on the exchange on which that futures contract is traded on a particular day.  The value of a foreign currency forward contract is based on the spot rate as of the close of business.  Interest income, as well as

- 12 -

 
 
 

management fees, incentive fees, and brokerage fees of the Partnership are recorded on an accrual basis.

Demeter believes that, based on the nature of the operations of the Partnership, no assumptions relating to the application of critical accounting policies other than those presently used could reasonably affect reported amounts.

The Partnership recorded total trading results including interest income totaling $2,428,936 and expenses totaling $42,984,777, resulting in a net loss of $40,555,841 for the year ended December 31, 2009.  The Partnership’s net asset value per Unit decreased from $40.80 at December 31, 2008, to $37.96 at December 31, 2009.  Total redemptions for the year were $100,683,490, and the Partnership’s ending capital was $464,645,047 at December 31, 2009, a decrease of $141,239,331 from ending capital at December 31, 2008, of $605,884,378.

The most significant trading losses of approximately 4.1% were incurred within the global interest rate sector, primarily during January, March, April, and June, from long positions in U.S., European, and Japanese fixed-income futures as prices dropped following news that debt sales might increase as governments around the world boosted spending in an effort to ease the deepening economic slump.  Newly established short positions in European, U.S., and Japanese fixed-income futures resulted in further losses, primarily during July, as prices moved higher on investor sentiment that the slow pace of the global economic recovery and signs of moderate inflation might lead central banks in these regions to maintain


- 13 -

 
 
 

low interest rates in the near term. Additional losses were recorded during August from newly established long positions in European fixed-income futures as prices reversed lower at the beginning of the month amid a rise in the European equity markets, thus reducing demand for the relative “safety” of government bonds. During December, further losses were incurred from long positions in U.S. and European fixed-income futures as prices fell sharply amid concern that an unprecedented supply of government bonds might outweigh demand as governments around the world were issuing record amounts of debt to finance economic stimulus measures. Losses of approximately 1.4% were experienced in the energy sector primarily during July from short futures positions in crude oil and its related products as prices moved higher during the latter half of the month amid better-than-expected quarterly earnings reports and positive economic data. During August, newly established long futures positions in crude oil and its related products recorded additional losses as prices reversed lower due to above-average U.S. stockpiles.  Further losses were incurred during October from long futures positions in crude oil and its related products as prices reversed lower after government reports showed U.S. consumer spending dropped for the first time in seven months.  Additional losses of approximately 1.3% were recorded in the currency sector, primarily during March, from short positions in the Swiss franc and euro versus the U.S. dollar as the value of the U.S. dollar decreased relative to most of its rivals following the U.S. Federal Reserve’s surprise plans to begin a more aggressive phase of quantitative easing and economic stimulus spending.  Additional losses were recorded during June and July from long positions in the Swiss franc and euro versus the U.S. dollar as the value of the U.S. dollar reversed higher against these currencies following better-than-expected U.S. payrolls and durable goods data. Elsewhere, long positions in the Mexican peso versus the U.S. dollar incurred losses, primarily during July and August, as the value of the Mexican peso declined on concerns

- 14 -

 
 
 

that Mexico might take longer to recover from a recession than investors previously estimated. Long positions in the British pound versus the U.S. dollar also experienced losses as the British pound fell during August and September on news that U.K. consumer confidence rose to the highest level in more than a year and Bank of England officials indicated inflation might remain low.  Lastly, losses were incurred from long positions in the Japanese yen versus the U.S. dollar primarily in December as the value of the U.S. dollar moved higher on speculation that the U.S. Federal Reserve might raise interest rates earlier than expected in the wake of positive economic data and consistent strength in the equity markets. Smaller losses of approximately 0.1% were recorded in the agricultural complex primarily during June as coffee futures prices reversed lower and fell throughout a majority of the third quarter amid expectations of higher global output due to favorable weather conditions in the world’s major growing regions, thus resulting in losses from long positions. Elsewhere, losses were recorded from long and short futures positions in the soybean complex as prices moved without consistent direction during July and August amid conflicting reports regarding supply and demand.  A portion of the Partnership’s losses was offset by gains of approximately 4.0% achieved within the metals complex, primarily during July and August, from long futures positions in copper as prices rose following news of an economic expansion in China during the second quarter of 2009, thereby spurring speculation that China’s demand for base metals might rise.  In December, additional gains were recorded as prices of copper futures rose to a 15-month high after workers at the world’s second-biggest copper mine in Chile voted to go on strike, thereby threatening the global supply.  Meanwhile, gains were achieved from long positions in gold futures primarily during October and November as prices rose due to concerns of a rise in inflation, as well as amid a drop in the value of the

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U.S. dollar, which spurred demand for the precious metal as an alternative investment.  Lastly, gains of approximately 3.9% were recorded within the global stock index markets throughout July, August, and September from long positions in European, U.S., and Hong Kong equity index futures as prices increased due to positive economic data and increased merger and acquisition activity in the technology sector. Further gains were achieved from long positions in European and U.S. global stock index futures as prices continued to increase throughout November and December after positive economic data and strong corporate earnings reports reinforced optimism that the global economic recovery might be gaining momentum.

The Partnership recorded total trading results including interest income totaling $218,426,776 and expenses totaling $64,781,909, resulting in a net income of $153,644,867 for the year ended December 31, 2008.  The Partnership’s net asset value per Unit increased from $31.24 at December 31, 2007, to $40.80 at December 31, 2008.  Total redemptions and subscriptions for the year were $149,518,441 and $78,579,397, respectively, and the Partnership’s ending capital was $605,884,378 at December 31, 2008, an increase of $82,705,823 from ending capital at December 31, 2007, of $523,178,555.

The most significant trading gains of approximately 10.3% were experienced in the energy sector throughout a majority of the first half of the year from long futures positions in crude oil and its related products as prices moved consistently higher due to speculation that OPEC might cut production, ongoing geopolitical concerns in the Middle East, growing Asian fuel consumption, and strong

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demand for physical commodities as an inflation hedge.  Additional gains were recorded during the fourth quarter from newly established short futures positions in crude oil and its related products as prices sharply decreased on concerns that a substantial global economic slowdown would erode energy demand.  Additional gains of approximately 9.5% were recorded in the global stock index sector during January, February, March, and June from short positions in U.S., European, and Pacific Rim equity index futures as prices decreased during the first half of the year on concerns that a persistent U.S. housing slump, mounting losses linked to U.S. sub-prime mortgage investments, rising commodity prices, and a weakening job market might restrain consumer spending, erode corporate earnings, and curb global economic growth.& #160; Additional gains were recorded during September and October as prices dropped sharply amid unprecedented U.S. financial market turmoil and growing concerns that efforts by central banks and governments around the world to support the financial system might not prevent a global recession.  Within the global interest rate sector, gains of approximately 7.7% were experienced primarily during January, May, June, October, and November from long positions in U.S. and European fixed-income futures as prices moved higher in a worldwide “flight-to-quality” following the aforementioned drop in the global equity markets, as well as worries regarding the fundamental health of the global economy and financial system.  Gains of approximately 5.5% were recorded in the agricultural markets primarily during January and February, from long positions in wheat futures as prices increased to a record high amid diminishing stockpiles and consistently rising global demand. Further gains w ere achieved during January, February, and June from long positions in corn futures as prices moved higher on supply concerns and rising demand for alternative biofuels.  Meanwhile, long futures positions in the soybean complex resulted in

- 17 -

 
 
 

gains primarily during June as prices increased after a government report showed a rise in demand for U.S. supplies.  During October, gains resulted from short futures positions in wheat and cotton as prices declined amid rising inventories and growing concerns that slowing global economic growth might reduce demand for these commodities.  Within the metals sector, gains of approximately 3.3% were achieved primarily during January and February from long positions in platinum and silver futures as prices moved higher amid continued uncertainty in the direction of the U.S. dollar and further “safe haven” buying due to weakness in global equity markets.  Meanwhile, gains were experienced, primarily during September, October, November, and December, from short futures positions in nickel, copper, z inc, aluminum, and tin as prices declined amid worries that a global economic recession might erode demand for base metals.  Finally, smaller gains of approximately 3.2% were recorded in the currency markets during February, March, and May from long positions in the Mexican peso and euro versus the U.S. dollar as the value of the U.S. dollar moved lower against these currencies during the first six months of the year amid speculation that signs of a slowing U.S. economy might spur the U.S. Federal Reserve to lower interest rates at a faster pace than other central banks around the world.  Short positions in the Korean won versus the U.S. dollar resulted in additional gains, primarily during March, as the value of the Korean won decreased relative to the U.S. dollar amid news of a widening Current-Account deficit out of Korea.  Further gains were experienced during October and November from newly established short positions in the euro, British pound, and Mexican peso versus the U.S. dollar as the value of the U.S. dollar moved higher against most of its rivals in tandem with rising U.S. dollar-denominated Treasury bonds amid the aforementioned

- 18 -

 
 
 

“flight-to-quality”.  Meanwhile, gains were experienced throughout the fourth quarter from long positions in the Japanese yen versus the U.S. dollar as the value of the Japanese yen increased after mounting fears of a global economic recession prompted investors to sell higher-yielding assets funded by loans in Japan.

The Partnership recorded total trading results including interest income totaling $84,240,950 and expenses totaling $46,320,807, resulting in net income of $37,920,143 for the year ended December 31, 2007.  The Partnership’s net asset value per Unit increased from $29.06 at December 31, 2006, to $31.24 at December 31, 2007.  Total redemptions and subscriptions for the year were $107,815,305 and $49,551,232, respectively, and the Partnership’s ending capital was $523,178,555 at December 31, 2007, a decrease of $20,343,930 from ending capital at December 31, 2006, of $543,522,485.

The most significant trading gains of approximately 6.1% were experienced in the currency sector during April, May, June, September, and October from short positions in the U.S. dollar versus the euro, Canadian dollar, Turkish lira, and Brazilian real, as well as outright short positions in the U.S. Dollar Index, as the value of the U.S. dollar weakened against most of its major rivals on investor sentiment that the U.S. Federal Reserve will need to reduce interest rates in order to prevent the U.S. economy from slowing.  Additional gains of approximately 5.7% were recorded in the global interest rate sector primarily during January, May, and June from short positions in European interest rate futures as prices trended lower after consistently strong economic data out of the United Kingdom and

- 19 -

 
 
 

Germany resulted in reduced demand for the “safe haven” of fixed-income investments.  In addition, prices moved higher on investor sentiment that the Bank of England and European Central Bank would need to raise interest rates in order to curb inflation.  During August and November, newly established long positions in U.S. and Japanese interest rate futures resulted in gains as prices increased in a continuation of a worldwide “flight-to-quality” after volatility in the global equity markets, spurred by losses in the U.S. sub-prime mortgage sector, caused investors to seek the “safety” of government bonds.  Within the energy markets, gains of approximately 4.7% were experienced primarily during July, September, October, and December from long futures positions in crude o il and its related products as prices moved higher amid persistent concerns regarding U.S. refinery capacity and after continuous hurricane activity in the Gulf of Mexico threatened production facilities.  Prices continued to increase amid rising tensions over Iran’s nuclear program, continued weakness in the U.S. dollar, and statements from senior OPEC officials indicating that production would not be increased to pull prices lower.  Smaller gains of approximately 0.9% were recorded in the agricultural markets during June, August, and September from long positions in wheat futures as prices rose amid persistently strong international demand and news from the U.S. Department of Agriculture that global stockpiles would fall to the lowest level in 26-years.  Elsewhere, long positions in soybean oil and soybean meal futures resulted in gains primarily during May and June as prices moved higher after a representative from the European Union announced plans to increase alternat ive fuel sources and U.S. government reports showed that soybean acreage was down from a year earlier.  During November and December, further gains were experienced from long futures positions in the soybean complex and wheat as prices

- 20 -

 
 
 

moved higher due to further data indicating dwindling global supplies.  A portion of the Partnership’s overall gains for the year was offset by losses of approximately 3.3% incurred in the global stock index sector during February and early March from long positions in Japanese and U.S. stock index futures as prices reversed sharply lower after a massive sell-off in the global equity markets that began on February 27, 2007, following comments from former U.S. Federal Reserve Chairman Alan Greenspan that the U.S. economy could be due for a recession.  In addition, concerns that tighter credit conditions in China and Japan might dampen global growth first sent Chinese stock markets plunging before the sell-off spread to other equity markets.  During July, August, November, and December, long positions in U.S. equity index futures resulted in further losses as prices fell sharply on concerns that a widening credit crunch, sparked by U.S. sub-prime mortgage losses, would erode global economic growth and corporate earnings.  Finally, smaller losses of approximately 1.2% were recorded in the metals markets throughout a majority of the year from both short and long positions in silver and aluminum futures as prices moved without consistent direction due to conflicting data regarding supply and demand, as well as uncertainty regarding the direction of the U.S. dollar.  During November, long positions in copper futures resulted in further losses as prices decreased on concerns that global demand would weaken while inventories continued to rise.

For an analysis of unrealized gains and (losses) by contract type and a further description of 2009 trading results, refer to the Partnership’s Annual Report to Limited Partners for the year ended December 31, 2009, which is incorporated by reference to Exhibit 13.01 of this Form 10-K.


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The Partnership’s gains and losses are allocated among its partners for income tax purposes.

Off-Balance Sheet Arrangements and Contractual Obligations.
The Partnership does not have any off-balance sheet arrangements, nor does it have contractual obligations or commercial commitments to make future payments that would affect its liquidity or capital resources.

Market Risk.
The Partnership is a party to financial instruments with elements of off-balance sheet market and credit risk.  The Partnership trades futures contracts, options on futures and forward contracts, and forward contracts on physical commodities and other commodity interests, including, but not limited to, foreign currencies, financial instruments, metals, energy, and agricultural products. In entering into these contracts, the Partnership is subject to the market risk that such contracts may be significantly influenced by market conditions, such as interest rate volatility, resulting in such contracts’ being less valuable. If the markets should move against all of the positions held by the Partnership at the same time, and the Trading Advisors were unable to offset positions of the Partnership, the Partnership could lose all of its assets and the limited partners would realize a loss equal to 100% of their capital account.

In addition to the Trading Advisors’ internal controls, the Trading Advisors must comply with the Partnership’s trading policies that include standards for liquidity and leverage that must be maintained.  The Trading Advisors and Demeter monitor the Partnership's trading activities to ensure compliance with the trading policies and Demeter can require the Trading Advisors to modify positions of the Partnership if Demeter believes they violate the Partnership's trading policies.
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Credit Risk.
In addition to market risk, in entering into futures, forward and options contracts, there is a credit risk to the Partnership that the counterparty on a contract will not be able to meet its obligations to the Partnership.  The ultimate counterparty or guarantor of the Partnership for futures, forward and options contracts traded in the United States and most foreign exchanges on which the Partnership trades is the clearinghouse associated with such exchange.  In general, a clearinghouse is backed by the membership of the exchange and will act in the event of non-performance by one of its members or one of its member’s customers, which should significantly reduce this credit risk.  There is no assurance that a clearinghouse, exchange, or other exchange member will meet its obligations to the Partn ership, and Demeter and the commodity brokers will not indemnify the Partnership against a default by such parties. Further, the law is unclear as to whether a commodity broker has any obligation to protect its customers from loss in the event of an exchange or clearinghouse defaulting on trades effected for the broker’s customers.  In cases where the Partnership trades off-exchange forward contracts with a counterparty, the sole recourse of the Partnership will be the forward contract’s counterparty.

Demeter deals with these credit risks of the Partnership in several ways.  First, Demeter monitors the Partnership’s credit exposure to each exchange on a daily basis.  The commodity brokers inform the Partnership, as with all of their customers, of the Partnership’s net margin requirements for all of its existing open positions, and Demeter has installed a system which permits it to monitor the Partnership’s potential net credit exposure, exchange by exchange, by adding the unrealized trading gains on each exchange, if any, to the Partnership’s margin liability thereon.
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Second, the Partnership’s trading policies limit the amount of its net assets that can be committed at any given time to futures contracts and require a minimum amount of diversification in the Partnership’s trading, usually over several different products and exchanges.  Historically, the Partnership’s exposure to any one exchange has typically amounted to only a small percentage of its total net assets and on those relatively few occasions where the Partnership’s credit exposure climbs above such level, Demeter deals with the situation on a case by case basis, carefully weighing whether the increased level of credit exposure remains appropriate.  Material changes to the trading policies may be made only with the prior written approval of the limited partners owning more than 50% of Units then outstanding.

Third, with respect to forward and options on forward contract trading, the Partnership trades with only those counterparties which Demeter, together with MS&Co., has determined to be creditworthy.  The Partnership presently deals with MS&Co. as the sole counterparty on all trading of foreign currency forward contracts and MSCG as the sole counterparty on all trading of options on foreign currency forward contracts.

For additional information, see the “Financial Instruments” section under “Notes to Financial Statements” in the Partnership’s Annual Report to Limited Partners for the year ended December 31, 2009, which is incorporated by reference to Exhibit 13.01 of this Form 10-K.

Inflation has not been a major factor in the Partnership’s operations.


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Fair Value Measurements and Disclosures.
As defined by Accounting Standards Codification (“ASC”) 820-10-55, Fair Value Measurements and Disclosures (formerly, Statement of Financial Accounting Standards (“SFAS”) No. 157, Fair Value Measurements), fair value is the amount that would be recovered when an asset is sold or an amount paid to transfer a liability, in an ordinary transaction between market participants at the measurement date (exit price).  Market price observability is impacted by a number of factors, including the types of investments, the characteristics specific to the investment, and the state of the market (including the existence and the transparency of transactions between market participants).  Investm ents with readily available actively quoted prices in an ordinary market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

ASC 820-10-55 requires use of a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1 – unadjusted quoted market prices in active markets for identical assets and liabilities; Level 2 - inputs other than unadjusted quoted market prices that are observable for the asset or liability, either directly or indirectly (including quoted prices for similar investments, interest rates, credit risk); and Level 3 - unobservable inputs for the asset or liability (including the Partnership’s own assumptions used in determining the fair value of investments).

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, an investment’s level within the fair value hierarchy is based on the lowest

- 25 -

 
 
 

level of input that is significant to the fair value measurement.  The Partnership’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment.

The following tables summarize the valuation of the Partnership’s investments according to the level of the above ASC 820-10-55 fair value hierarchy as of December 31, 2009 and 2008, respectively:
 
         Unadjusted
                Quoted Prices in
             Active Markets for
                 Identical Assets
                        (Level 1)
 
               Significant Other
                  Observable
                      Inputs
                     (Level 2)
 
           Significant
        Unobservable
               Inputs
              (Level 3)
 
 
 
 
Total
 
December 31, 2009
$
$
  
$
Assets
        
Net unrealized gain (loss) on open
contracts
 
 12,929,342
 
(914,041)
 
n/a
 
12,015,301
         
 
December 31, 2008
        
Assets
        
Net unrealized gain (loss) on open
contracts
 
 27,202,139
 
(1,156,375)
 
n/a
 
26,045,764

Derivatives and Hedging
ASC 815-10-65, Derivatives and Hedging (formerly, SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities – an amendment of SFAS No. 133), which was issued in March 2008, is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand how those instruments and activities are accounted for; how and why they are used; and their effects on a Partnership’s financial position, financial performance, and cash flows.  ASC 815-10-65 is effective as of January 1, 2009, for the Partnership.  The

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adoption of ASC 815-10-65 did not have a material impact on the Partnership’s financial statement, other than enhanced financial statements disclosures.

The Partnership’s objective is to profit from speculative trading in Futures Interests.  Therefore, the Trading Advisors for the Partnership will take speculative positions in Futures Interests where they feel the best profit opportunities exist for their trading strategy.  As such, the absolute quantity (the total of the open long and open short positions) has been presented as a part of the volume disclosure, as position direction is not an indicative factor in such volume disclosures.  In regards to foreign currency forward trades, each notional quantity amount has been converted to an equivalent contract based upon an industry convention.

The following table summarizes the valuation of the Partnership’s investments as required by the ASC 815-10-65 as of December 31, 2009 and reflects the contracts outstanding at such time.

The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2009:
Futures and Forward Contracts
Long
 Unrealized
Gain
Long
Unrealized
Loss
 Short Unrealized
Gain
        Short   Unrealized
   Loss
Net   Unrealized
 Gain/(Loss)
Average number of
contracts
outstanding
for the year (absolute quantity)
 
$
$
$
$
$
  
               
Commodity
13,176,127
(2,849,152)
344,940
(1,902,680)
8,769,235
5,839
  
Equity
3,532,600
(108,030)
15,569
—
3,440,139
2,450
  
Foreign currency
1,015,082
(2,350,882)
650,586
(215,980)
(901,194)
11,725
  
Interest rate
  2,444,830
 (1,183,632)
       346,565
    (133,689)
     1,474,074
8,812
  
Total
  20,168,639
 (6,491,696)
    1,357,660
 (2,252,349)
12,782,254
    
               
Unrealized currency loss
        
      (766,953)
    
Total net unrealized gain on open contracts
        
 
    12,015,301
    



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The following table summarizes the net trading results of the Partnership for the year ended December 31, 2009 as required by the disclosures about Derivatives and Hedging Topic of ASC 815-10-65.

The Effect of Trading Activities on the Statements of Operations for the year ended December 31, 2009 included in Total Trading Results:

Type of Instrument
                                                           $
   
Commodity
10,512,655
Equity
23,140,270
Foreign currency
(11,446,352)
Interest rate
(20,962,448)
Unrealized currency gain
        768,289
Total
     2,012,414


Line Items on the Statements of Operations for the year ended December 31, 2009:
Trading Results
                                                                   $
   
Realized
16,042,877
Net change in unrealized
   (14,030,463)
Total Trading Results
        2,012,414

Other Pronouncements
(a)  Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles
On July 1, 2009, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, also known as FASB ASC 105-10, Generally Accepted Accounting Principles (“ASC 105-10” or the “Codification”).  ASC 105-10 established the exclusive authoritative reference for U.S. GAAP for use in financial statements except for SEC rules and interpretive releases, which are also authoritative GAAP for SEC registrants.  The Codification supersedes all existing non-SEC accounting and reporting standards.  The Codification became the single source of authoritative accoun ting principles generally accepted in the

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United States and is effective for financial statements issued for interim and annual periods ending after September 15, 2009.

(b)  Subsequent Events
The Partnership adopted ASC 855-10, Subsequent Events (formerly, SFAS No. 165, Subsequent Events), which was issued in May 2009, and Accounting Standards Update (“ASU”) No. 2010-09, Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosures Requirements, which was issued in February 2010.  ASC 855-10 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issu ed.  ASC 855-10 is effective for the interim and annual periods ending after June 15, 2009 and ASU No. 2010-09 is effective immediately.  Management has performed its evaluation of subsequent events, and has determined that there were no subsequent events requiring adjustment or disclosures in the financial statements.

(c)  Fair Value Measurements
ASC 820-10-65, Fair Value Measurements (formerly, FASB Staff Position (“FSP”) SFAS No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly), was issued in April 2009.  ASC 820-10-65 provides additional guidance for determining fair value and requires new disclosures regarding the categories of fair value instruments, as well as the inputs and valuation techniques utilized to determine fair value and any changes to the inputs and valuation techniques during the


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period.  ASC 820-10-65 is effective for the interim and annual periods ending after June 15, 2009.  The adoption of ASC 820-10-65 did not have a material impact on the Partnership’s financial statements.

Recent Accounting Pronouncements

(a)  Improving Disclosures about Fair Value Measurements
In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements, which, among other things, amends ASC 820 to require entities to separately present purchases, sales, issuances, and settlements in their reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and which clarifies existing disclosure requirements provided by ASC 820 regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 that fall within either Level 2 or Level 3 of the fair value hierarchy.  ASU No. 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the disc losures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The Partnership is currently assessing the impact of adopting ASU No. 2010-06.

(b) Consolidation of Variable Interest Entities

In June 2009, the FASB issued ASC 810-10, Consolidation of Variable Interest Entities (formerly, SFAS 167, Amendments to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities). ASC

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810-10 contains new criteria for determining the primary beneficiary, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a variable interest entity. ASC 810-10 also contains a new requirement that any term, transaction, or arrangement that does not have a substantive effect on an entity’s status as a variable interest entity, a company’s power over a variable interest entity, or a company’s obligation to absorb losses or its right to receive benefits of an entity must be disregarded in applying Interpretation 46(R)’s provisions. ASC 810-10 is applicable for annual periods beginning after November 15, 2009, and interim periods thereafter.  Effective February 25, 2010, the FASB has decided to indefinitely defer the application of ASC 810-10 for certain entities. Management believes that the Partnership meets the criteria for the indefinite deferral of the application of ASC 810-10.

Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Introduction

The Partnership is a commodity pool engaged primarily in the speculative trading of futures, forwards and options. The market-sensitive instruments held by the Partnership are acquired for speculative trading purposes only and, as a result, all or substantially all of the Partnership’s assets are at risk of trading loss.  Unlike an operating company, the risk of market-sensitive instruments is inherent to the primary business activity of the Partnership.

The futures, forwards and options on such contracts traded by the Partnership involve varying degrees of related market risk.  Market risk is often dependent upon changes in the level or volatility of interest rates,

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exchange rates, and prices of financial instruments and commodities, factors that result in frequent changes in the fair value of the Partnership’s open positions, and consequently in its earnings, whether realized or unrealized, and cash flow.  Gains and losses on open positions of exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts are settled daily through variation margin.  Gains and losses on off-exchange-traded forward currency contracts are settled upon termination of the contract.  Gains and losses on off-exchange-traded forward currency options contracts are settled upon an agreed upon settlement date.  However, the Partnership is required to meet margin requirements equal to the net unrealized loss on open forward currency con tracts in the Partnership accounts with the counterparty, which is accomplished by daily maintenance of the cash balance in a custody account held at MS&Co.

The Partnership’s total market risk may increase or decrease as it is influenced by a wide variety of factors, including, but not limited to, the diversification among the Partnership’s open positions, the volatility present within the markets, and the liquidity of the markets.

The face value of the market sector instruments held by the Partnership is typically many times the applicable margin requirements.  Margin requirements generally range between 2% and 15% of contract face value.  Additionally, the use of leverage causes the face value of the market sector instruments held by the Partnership typically to be many times the total capitalization of the Partnership.




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The Partnership’s past performance is no guarantee of its future results.  Any attempt to numerically quantify the Partnership’s market risk is limited by the uncertainty of its speculative trading.  The Partnership’s speculative trading and use of leverage may cause future losses and volatility (i.e., “risk of ruin”) that far exceed the Partnership’s experience to date under the “Partnership’s Value at Risk in Different Market Sectors” section and significantly exceed the Value at Risk (“VaR”) tables disclosed.

Limited partners will not be liable for losses exceeding the current net asset value of their investment.

Quantifying the Partnership’s Trading Value at Risk
The following quantitative disclosures regarding the Partnership’s market risk exposures contain “forward-looking statements” within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).  All quantitative disclosures in this section are deemed to be forward-looking statements for purposes of the safe harbor, except for statements of historical fact.

The Partnership accounts for open positions on the basis of mark to market accounting principles.  Any loss in the market value of the Partnership’s open positions is directly reflected in the Partnership’s earnings and cash flow.


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The Partnership’s risk exposure in the market sectors traded by the Trading Advisors is estimated below in terms of VaR. The Partnership estimates VaR using a model based upon historical simulation (with a confidence level of 99%) which involves constructing a distribution of hypothetical daily changes in the  value of a trading portfolio.  The VaR model takes into account linear exposures to risks including equity and commodity prices, interest rates, foreign exchange rates, and correlation among these variables. The hypothetical changes in portfolio value are based on daily percentage changes observed in key market indices or other market factors (“market risk factors”) to which the portfolio is sensitive.  The one-day 99% confidence level of the Partnership’s VaR corresponds to the negative change in portfolio value that, based on observed market risk factors, would have been exceeded once in 100 trading days, or one day in 100.  VaR typically does not represent the worst case outcome.  Demeter uses approximately four years of daily market data (1,000 observations) and re-values its portfolio (using delta-gamma approximations) for each of the historical market moves that occurred over this time period.  This generates a probability distribution of daily “simulated profit and loss” outcomes.  The VaR is the appropriate percentile of this distribution.  For example, the 99% one-day VaR would represent the 10th worst outcome from Demeter’s simulated profit and loss series.

The Partnership’s VaR computations are based on the risk representation of the underlying benchmark for each instrument or contract and do not distinguish between exchange and non-exchange dealer-based instruments.  They are also not based on exchange and/or dealer-based maintenance margin requirements.


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VaR models, including the Partnership’s, are continually evolving as trading portfolios become more diverse and modeling techniques and systems capabilities improve.  Please note that the VaR model is used to numerically quantify market risk for historic reporting purposes only and is not utilized by either Demeter or the Trading Advisors in their daily risk management activities.  Please further note that VaR as described above may not be comparable to similarly-titled measures used by other entities.

The Partnership’s Value at Risk in Different Market Sectors
The following table indicates the VaR associated with the Partnership’s open positions as a percentage of total net assets by primary market risk category at December 31, 2009 and 2008.  At December 31, 2009 and 2008, the Partnership’s total capitalization was approximately $465 million and $606 million, respectively.
Primary Market
December 31, 2009
December 31, 2008
Risk Category
Value at Risk
Value at Risk
     
Equity
(2.24)%
(0.03)%      
     
Currency
(0.68)
(0.10)
     
Interest Rate
(0.38)
(0.43)
     
Commodity
(2.38)
(0.31)
     
Aggregate Value at Risk
(4.43)%
(0.57)%     

The VaR for a market category represents the one-day downside risk for the aggregate exposures associated with this market category.  The Aggregate Value at Risk listed above represents the VaR of the Partnership’s open positions across all the market categories, and is less than the sum of the VaRs for all such market categories due to the diversification benefit across asset classes.
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Because the business of the Partnership is the speculative trading of futures, forwards and options, the composition of its trading portfolio can change significantly over any given time period, or even within a single trading day.  Such changes could positively or negatively materially impact market risk as measured by VaR.

The tables below supplement the December 31, 2009 and 2008 VaR set forth above by presenting the Partnership’s high, low, and average VaR, as a percentage of total net assets for the four quarter-end reporting periods from January 1, 2009 through December 31, 2009 and January 1, 2008 through December 31, 2008, respectively.

December 31, 2009
      
Primary Market Risk Category
High
Low
Average
Equity
(2.48)%     
(0.23)%    
(1.44)%
Currency
(0.98)
(0.21)
(0.61)
Interest Rate
(0.86)
(0.25)
(0.55)
Commodity
(2.38)
(0.27)
(1.29)
Aggregate Value at Risk
(4.43)%    
(0.78)%    
(2.72)%










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December 31, 2008
      
Primary Market Risk Category
High
Low
Average
Equity
(0.59)%   
(0.03)%  
(0.30)%
Currency
(0.76)
(0.10)
(0.41)
Interest Rate
(0.43)
(0.21)
(0.33)
Commodity
(1.69)
(0.31)
(0.87)
Aggregate Value at Risk
(1.94)%     
(0.57)%   
(1.16)%

Limitations on Value at Risk as an Assessment of Market Risk

VaR models permit estimation of a portfolio’s aggregate market risk exposure, incorporating a range of varied market risks, reflect risk reduction due to portfolio diversification or hedging activities, and can cover a wide range of portfolio assets.  However, VaR risk measures should be viewed in light of the methodology’s limitations, which include, but may not be limited to the following:

·  
past changes in market risk factors will not always result in accurate predictions of the distributions and correlations of future market movements;
·  
changes in portfolio value caused by market movements may differ from those of the VaR model;
·  
VaR results reflect past market fluctuations applied to current trading positions while future risk depends on future positions;
·  
VaR using a one-day time horizon does not fully capture the market risk of positions that cannot be liquidated or hedged within one day; and

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·  
the historical market risk factor data used for VaR estimation may provide only limited insight into losses that could be incurred under certain unusual market movements.

In addition, the VaR tables above, as well as the past performance of the Partnership, give no indication of the Partnership’s potential “risk of ruin”.

The VaR tables provided present the results of the Partnership’s VaR for each of the Partnership’s market risk exposures and on an aggregate basis at December 31, 2009 and 2008, and for the four quarter-end reporting periods during calendar years 2009 and 2008.  VaR is not necessarily representative of the Partnership’s historic risk, nor should it be used to predict the Partnership’s future financial performance or its ability to manage or monitor risk.  There can be no assurance that the Partnership’s actual losses on a particular day will not exceed the VaR amounts indicated above or that such losses will not occur more than once in 100 trading days.

Non-Trading Risk
The Partnership has non-trading market risk on its foreign cash balances.  These balances and any market risk they may represent are immaterial.

The Partnership also maintains a substantial portion of its available assets in cash at MS&Co.; as of December 31, 2009, such amount is equal to approximately 91% of the Partnership‘s net asset value.  A decline in short-term interest rates would result in a decline in the Partnership’s cash management income. This cash flow risk is not considered to be material.
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Materiality, as used throughout this section, is based on an assessment of reasonably possible market movements and any associated potential losses, taking into account the leverage, optionality, and multiplier features of the Partnership’s market-sensitive instruments, in relation to the Partnership’s net assets.

Qualitative Disclosures Regarding Primary Trading Risk Exposures
The following qualitative disclosures regarding the Partnership’s market risk exposures – except for (A) those disclosures that are statements of historical fact and (B) the descriptions of how the Partnership manages its primary market risk exposures – constitute forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act.  The Partnership’s primary market risk exposures, as well as the strategies used and to be used by Demeter and the Trading  Advisors for managing such exposures, are subject to numerous uncertainties, contingencies and risks, any one of which could cause the actual results of the Partnership’s risk controls to differ materially from the objectives of such strategies. Government interventions, d efaults and expropriations, illiquid markets, the emergence of dominant fundamental factors, political upheavals, changes in historical price relationships, an influx of new market participants, increased regulation, and many other factors could result in material losses, as well as in material changes to the risk exposures and the risk management strategies of the Partnership.  Investors must be prepared to lose all or substantially all of their investment in the Partnership.

The Trading Advisors, in general, tend to utilize system(s) to take positions when market opportunities develop, and Demeter anticipates that the Trading Advisors will continue to do so.
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The following were the primary trading risk exposures of the Partnership at December 31, 2009, by market sector.  It may be anticipated, however, that these market exposures will vary materially over time.

Equity.  The largest market exposure of the Partnership at December 31, 2009, was to the global stock index sector, primarily to equity price risk in the G-7 countries. The G-7 countries consist of France, the U.S., the United Kingdom, Germany, Japan, Italy, and Canada.  The stock index futures traded by the Partnership are by law limited to futures on broadly-based indices.  The Partnership’s primary market exposures were to the DAX (Germany), S&P 500 (U.S.), NASDAQ 100 (U.S.), Euro Stox 50 (Europe), Nikkei 225 (Japan), SPI 200 (Australia), Hang Seng (Hong Kong), IBEX 35 (Spain), FTSE 100 (United Kingdom), CAC 40 (France), S&P/MIB (Italy), Canadian S&P 60 (Canada), Dow Jones (U.S.), AEX (The Netherlands), Taiwan Stock Index (Taiwan), Russell 2000 (U.S), OMX 30 (Sweden), S&P Midcap (U.S.), ALL SHARE (South Africa), and Singapore Free (Singapore) stock indices.  The Partnership is typically exposed to the risk of adverse price trends or static markets in the European, U.S., Asian, Australian, Canadian, and South African stock indices.  Static markets would not cause major market changes, but would make it difficult for the Partnership to avoid trendless price movements, resulting in numerous small losses.

Currency.  At December 31, 2009, the Partnership had market exposure to the currency sector.  The Partnership’s currency market exposure was to exchange rate fluctuations, primarily fluctuations which disrupt the historical pricing relationships between different currencies and currency pairs.  Interest

- 40 -

 
 
 

rate changes, as well as political and general economic conditions influence these fluctuations.  The Partnership trades a large number of currencies, including cross-rates - i.e., positions between two currencies other than the U.S. dollar.  At December 31, 2009, the Partnership’s major exposures were to the British pound, Australian dollar, euro, Canadian dollar, Japanese yen, Swiss franc, New Zealand dollar, and Swedish krona currency crosses, as well as to outright U.S. dollar positions.  Outright positions consist of the U.S. dollar vs. other currencies.  These other currencies include major and minor currencies.  Demeter does not anticipate that the risk associated with the Partnership’s currency trades will chan ge significantly in the future.

Interest Rate.  At December 31, 2009, the Partnership had market exposure to the global interest rate sector.  Exposure was primarily spread across the European, Japanese, U.S., Australian, and Canadian interest rate sectors.  Interest rate movements directly affect the price of the sovereign bond futures positions held by the Partnership and indirectly affect the value of its stock index and currency positions.  Interest rate movements in one country, as well as relative interest rate movements between countries, materially impact the Partnership’s profitability.  The Partnership’s interest rate exposure is generally to interest rate fluctuations in the U.S. and the other G-7 countries’ interest rates.&# 160; However, the Partnership also takes futures positions in the government debt of smaller countries - e.g., Australia.  Demeter anticipates that the G-7 countries’ interest rates and Australian interest rates will remain the primary interest rate exposure of the Partnership for the foreseeable future.  The speculative futures positions held by the Partnership may range from short to long-term instruments.  Consequently, changes in short, medium, or long-term interest rates may have an effect on the Partnership.
- 41 -

 
 
 

Commodity.
Metals. The second largest market exposure of the Partnership at December 31, 2009, was to the metals sector.  The Partnership's metals exposure was to fluctuations in the price of base metals, such as copper, aluminum, zinc, nickel, lead, and tin, as well as precious metals, such as gold, platinum, silver, and palladium. Economic forces, supply and demand inequalities, geopolitical factors, and market expectations influence price movements in these markets.

Soft Commodities and Agriculturals.  The third largest market exposure of the Partnership at December 31, 2009, was to the markets that comprise these sectors.  Most of the exposure was to the cotton, sugar, soybean meal, soybeans, soybean oil, rubber, cocoa, coffee, wheat, orange juice, corn, live cattle, lean hogs, feeder cattle, and lumber markets.  Supply and demand inequalities, severe weather disruptions, and market expectations affect price movements in these markets.

Energy.  At December 31, 2009, the Partnership had market exposure to the energy sector.  The Partnership’s energy exposure was shared primarily by futures contracts in crude oil and its related products, as well as in natural gas. Price movements in these markets result from geopolitical developments, particularly in the Middle East, as well as weather patterns and other economic fundamentals.  Significant profits and losses, which have been experienced in the past, are expected to continue to be experienced in the future.  Natural gas has exhibited volatility in prices resulting from weather patterns and supply and demand factors and will likely continue in this choppy pattern.
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Qualitative Disclosures Regarding Non-Trading Risk Exposure
The following was the only non-trading risk exposure of the Partnership at December 31, 2009:

Foreign Currency Balances.  The Partnership’s major foreign currency balances at December 31, 2009, were in euros, Australian dollars, Japanese yen, British pounds, South African rands, Swiss francs, Canadian dollars, New Zealand dollars, Czech koruny, Swedish kronor, Hong Kong dollars, Hungarian forint, Singapore dollars, and Norwegian kroner.  The Partnership controls the non-trading risk of foreign currency balances by regularly converting them back into U.S. dollars upon liquidation of their respective positions.

Qualitative Disclosures Regarding Means of Managing Risk Exposure
The Partnership and the Trading Advisors, separately, attempt to manage the risk of the Partnership’s open positions in essentially the same manner in all market categories traded.  Demeter attempts to manage market exposure by diversifying the Partnership’s assets among different market sectors and trading approaches through the selection of Commodity Trading Advisors and by daily monitoring their performance.  In addition, the Trading Advisors establish diversification guidelines, often set in terms of the maximum margin to be committed to positions in any one market sector or market-sensitive instrument.

Demeter monitors and controls the risk of the Partnership’s non-trading instrument, cash.  Cash is the only Partnership investment directed by Demeter, rather than the Trading Advisors.


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Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements are incorporated by reference to the Partnership's Annual Report, which is filed as Exhibit 13.01 hereto.
Supplementary data specified by Item 302 of Regulation S-K:

Summary of Quarterly Results (Unaudited)


 
Total Trading Results
Net
Net Income/
Quarter Ended
including interest income
Income/(Loss)
(Loss) Per Unit
       
2009
      
March 31
                 $(21,884,401)                     
$(34,297,947)
$(2.42)
June 30
            (10,445,856)
(20,889,883)
(1.59)
September 30
          27,758,217
            17,928,023
                        1.41
December 31
             7,000,976        
             (3,296,034)
  (0.24)
       
Total
$  2,428,936
             $(40,555,841)
 $(2.84)
       
       
2008
      
March 31
$ 84,917,687
$67,727,810
$4.08
June 30
69,168,052   
52,396,471
3.31
September 30
            (43,215,339)
           (55,279,648)
                         (3.55)
December 31
107,556,376
           88,800,234
   5.72
       
Total
$218,426,776
             $153,644,867
 $9.56



Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.


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Item 9A.  CONTROLS AND PROCEDURES
As of the end of the period covered by this annual report, the President and Chief Financial Officer of Demeter have evaluated the effectiveness of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act), and have judged such controls and procedures to be effective.

Management’s Report on Internal Control Over Financial Reporting
Demeter is responsible for the management of the Partnership.

Management of Demeter (“Management”) is responsible for establishing and maintaining adequate internal control over financial reporting.  The internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

The Partnership’s internal control over financial reporting includes those policies and procedures that:

·  
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnership;

·  
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Partnership’s transactions are being made only in accordance with authorizations of Management and directors of Demeter; and
- 45 -

 
 
 


·  
Provide reasonable assurance regarding prevention or timely detection and correction of unauthorized acquisition, use or disposition of the Partnership’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Partnership’s internal control over financial reporting as of December 31, 2009.  In making this assessment, Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Based on our assessment and those criteria, Management believes that the Partnership maintained effective internal control over financial reporting as of December 31, 2009.

Attestation Report of the Registered Public Accounting Firm
Deloitte & Touche LLP, the Partnership’s independent registered public accounting firm, has issued an attestation report on the Partnership’s internal control over financial reporting.  This report, which expresses an unqualified opinion on the Partnership’s internal control over financial reporting, appears under “Report of Independent Registered Public Accounting Firm” in the Partnership’s Annual Report to Limited Partners for the year ended December 31, 2009.
- 46 -

 
 
 

Changes in Internal Control over Financial Reporting
There have been no changes during the period covered by this annual report in the Partnership’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected or are reasonably likely to affect the Partnership’s internal control over financial reporting.

Limitations on the Effectiveness of Controls
Any control system, no matter how well designed and operated, can provide reasonable (not absolute) assurance that its objectives will be met.  Furthermore, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Item 9A(T).  CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of the management of Demeter, at the time this annual report was filed, Demeter’s President (Demeter’s principal executive officer) and Chief Financial Officer (Demeter’s principal financial officer) have evaluated the effectiveness of the design and operation of the Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(e) under the Exchange Act) as of December 31, 2009.  The Partnership’s disclosure controls and procedures are designed to provide reasonable assurance that information the Partnership is required to disclose in the reports that the Partnership files or submits under the Exchange Act are

- 47 -

 
 
 

recorded, processed and summarized and reported within the time period specified in the applicable rules and forms.  Based on this evaluation, the President and Chief Financial Officer of Demeter have concluded that the disclosure controls and procedures of the Partnership were effective at December 31, 2009.

Management’s Report on Internal Control Over Financial Reporting
Demeter is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act).  Demeter has assessed the effectiveness of the Partnership’s internal control over financial reporting as of December 31, 2009.  In making this assessment, Demeter used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, in Internal Control-Integrated Framework.  Demeter has concluded that, as of December 31, 2009, the Partnership’s internal control over financial reporting is effective based on these criteria.  This report shall not be deemed to be filed for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section.   ;This annual report does not include an attestation report of the Partnership’s independent registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by the Partnership’s independent registered public accounting firm pursuant to temporary rules of the SEC that permit the Partnership to provide only management's report in this annual report.

Item 9B.  OTHER INFORMATION
None.
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Item 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

There are no directors or executive officers of the Partnership.  The Partnership is managed by Demeter, its general partner.


Directors and Officers of the General Partner
The directors and executive officers of Demeter are as follows:

Effective May 1, 2006, Mr. Walter Davis, age 45, is a Director, Chairman of the Board of Directors, and President of Demeter.  Mr. Davis is a Managing Director at Morgan Stanley Smith Barney and the Director of Morgan Stanley Smith Barney’s Managed Futures Department.  Prior to joining Morgan Stanley in 1999, Mr. Davis worked for Chase Manhattan Bank’s Alternative Investment Group.  Throughout his career, Mr. Davis has been involved with the development, management, and marketing of a diverse array of commodity pools, hedge funds, and other alternative investment funds.  Mr. Davis received an M.B.A. in Finance and International Business from the Columbia University Graduate School of Business in 1992 and a B.A. degree in Economics from the University of the South in 1987.

Effective December 5, 2002, Mr. Frank Zafran, age 54, is a Director of Demeter.  Mr. Zafran is a Managing Director at Morgan Stanley Smith Barney and in June 2009, was named Director of Annuities.  Previously, Mr. Zafran was Director of the Wealth Solutions Division.  Mr. Zafran joined the firm in 1979 and has held various positions in Corporate Accounting and the Insurance Department, including Senior Operations Officer — Insurance Division, until his appointment in 2000 as Director of Retirement Plan


- 49 -

 
 
 

Services, responsible for all aspects of 401(k) Plan Services, including marketing, sales, and operations.  Subsequently, he was named Chief Administrative Officer of Morgan Stanley’s Client Solution Division in 2002.  Mr. Zafran, in addition of being a Director of Demeter, is a Director of Morgan Stanley Insurance Services, Inc., Morgan Stanley Smith Barney Insurance Services LLC, The Insured Retirement Institute and Community Hospice of Bergen County Inc., and Morgan Stanley Dean Witter Insurance Services (Arizona) Inc.  Mr. Zafran received a B.S. degree in Accounting from Brooklyn College, New York.

Effective March 31, 2003, Mr. Douglas J. Ketterer, age 44, is a Director of Demeter.  Mr. Ketterer is a Managing Director and Chief Operating Officer, Wealth Management Group, within Morgan Stanley Smith Barney.  Mr. Ketterer joined Morgan Stanley in 1990 and has served in many roles in the corporate finance/investment banking, asset management, and wealth management divisions of the firm; most recently as a head of the Product Group with responsibility for a number of departments (including, among others, the Alternative Investments Group, Consulting Services Group, Annuities & Insurance Department, and Retirement & Equity Solutions Group), which offer products and services through Morgan Stanley’s Global Wealth Management Group.  Mr. Ketterer, in addition of being a Director of Demeter, is a Director of Morgan Stanley GWM Feeder Strategies LLC, Morgan Stanley HedgePremier GP LLC, and Morgan Stanley Offshore Investment Company Ltd.  Mr. Ketterer received his M.B.A. from New York University’s Leonard N. Stern School of Business and his B.S. degree in Finance from the University at Albany’s School of Business.



- 50 -

 
 
 

Effective May 1, 2005, Mr. Harry Handler, age 51, is a Director of Demeter.  Mr. Handler serves as an Executive Director at Morgan Stanley in the Global Wealth Management Group.  Mr. Handler works in the Capital Markets Division as Equity Business Officer.  Additionally, Mr. Handler serves as Chairman of the Global Wealth Management Group’s Best Execution Committee and manages the Stock Lending business.  In his prior position, Mr. Handler was a Systems Director in Information Technology, in charge of Equity and Fixed Income Trading Systems along with the Special Products, such as Unit Trusts, Managed Futures, Futures and Annuities.  Prior to his transfer to the Information Technology Area, Mr. Handler managed the Foreign Currency and Precious Metals Trading Desk of Dean Witter, a predecessor company to Morgan Stanley.  He also held various positions in the Futures Division where he helped to build the Precious Metals Trading Operation of Dean Witter.  Before joining Dean Witter, Mr. Handler worked at Mocatta Metals as an Assistant to the Chairman. His roles at Mocatta Metals included stints on the Futures Order Entry Desk and the Commodities Exchange Trading Floor.  Additional work included building a computerized Futures Trading System and writing a history of the company.  Mr. Handler graduated on the Dean’s List from the University of Wisconsin-Madison with a B.A. degree and a double major in History and Political Science.

Effective March 20, 2008, Mr. Jose Morales, age 33, is a Director of Demeter.  Mr. Morales has been a principal of Demeter since June 23, 2008.  Mr. Morales is an Executive Director at Morgan Stanley Smith Barney and is the Associate Director of its New Products Committee.  Prior to his current role, Mr. Morales headed the Product Development Group for Morgan Stanley & Co. Incorporated’s Global Wealth Management business since August 2007.  Mr. Morales joined Morgan Stanley in September 1998 as an analyst in the investment management division, and subsequently held positions in the Morgan Stanley

- 51 -

 
 
 

Investment Management Global Product Development Group from May 2000 to December 2003, in the Global Wealth Management Product Development Group from December 2003 to June 2006, and in Global Wealth Management Alternative Investments Product Development & Management from June 2006 to August 2007.  Prior to his appointment as a director of Demeter, Mr. Morales served as a member  of the managed Futures Investment Management Committee from March of 2005 until March of 2008.  Mr. Morales received an M.B.A. with a concentration in Finance from the NYU Stern School of Business in June 2007 and a B.S. in International Business Administration with a concentration in Economics from Fordham University in 1998.

Effective May 11, 2006, Mr. Michael McGrath, age 41, is a Director of Demeter.  Mr. McGrath is a Managing Director at Morgan Stanley Smith Barney and currently serves as the Head of Alternative Investments for the Global Wealth Management Group of Morgan Stanley Smith Barney.  He also serves on the Management Committee of the Global Wealth Management Group.   Prior to his current role, Mr. McGrath served as the Director of Product Management for the Consulting Services Group in Morgan Stanley & Co. Incorporated as well as the Chief Operating Officer for Private Wealth Management North America and Private Wealth Management Latin America (the Americas) and the Director of Product Development for Morgan Stanley & Co. Incorporated’s Global Wealth Management Group.  Mr. McGrath join ed Morgan Stanley & Co. Incorporated in May 2004, after three years with Nuveen Investments, a publicly traded investment management company headquartered in Chicago, Illinois.  At Nuveen, Mr. McGrath served as a Managing Director and oversaw the development of alternative investment products catering to the ultra-high net worth investor.  Mr. McGrath, in addition to being a


- 52 -

 
 
 

Director of Demeter is a Director of Morgan Stanley GWM Feeder Strategies LLC and Morgan Stanley HedgePremier GP LLC.  Mr. McGrath received his B.A. degree from Saint Peters College in 1990, and currently serves on the school’s Board of Regents. He received his M.B.A. in Finance from New York University in 1996.

Effective September 22, 2006, Mr. Jacques Chappuis, age 40, is a Director of Demeter.  Mr. Chappuis is a Managing Director of Morgan Stanley and Head of Alternative Investment Partners.  He joined Morgan Stanley in 2006 and has 16 years of relevant industry experience.  Prior to his current role, he was Head of Alternative Investments for Morgan Stanley’s Global Wealth Management Group responsible for all aspects of the alternative investments platform including Morgan Stanley’s industry-leading managed futures fund of fund business and customized hedge fund portfolio business.  Mr. Chappuis has experience managing Fund of Fund organizations.  Demeter previously reported to him, as did Graystone Consulting, as does Morgan Stanley Alternative Investment Partners currently. 60; Before joining Morgan Stanley, Jacques was Head of Alternative Investments for Citigroup’s Global Wealth Management Group and prior to that a Managing Director at Citigroup Alternative Investments.  In both roles, Jacques’ responsibilities spanned the spectrum of alternative investments including hedge funds, private equity, and real estate, among others.  Previously, Jacques was a consultant at the Boston Consulting Group where he focused on the financial services sector, and an investment banker at Bankers Trust Company.  Mr. Jacques Chappuis, in addition of being a Director of Demeter, is a Director of Morgan Stanley AIP Funding Inc. and Morgan Stanley HedgePremier GP LLC, Chairman of Morgan Stanley AIP (Cayman) GP Ltd., Morgan Stanley Alpha Institutional Cayman Fund SPC, Morgan Stanley Alternative Investments Inc., Morgan Stanley HedgePremier GP LLC, Morgan Stanley Institutional Cayman Fund SPC, and

- 53 -

 
 
 

Morgan Stanley Opportunistic Cayman Fund SPC, Managing Director of Morgan Stanley AIP (Cayman) GP Ltd., Morgan Stanley AIP Funding Inc., Morgan Stanley Alternative Investments Inc., Morgan Stanley Institutional Cayman Fund SPC, Morgan Stanley Investment Management Inc., Morgan Stanley Opportunistic Cayman Fund SPC, Morgan Stanley SCRSIC Strategic Partnership Fund GP Inc., and Morgan Stanley Alpha Institutional Cayman Fund SPC, and President of Morgan Stanley Alpha Institutional Cayman Fund SPC, Morgan Stanley SCRSIC Strategic Partnership Fund GP Inc.,  and Morgan Stanley HedgePremier GP LLC.  Mr. Chappuis was a Director, Chairman, and President of Morgan Stanley GWM Feeder Strategies LLC from February 2007 to September 2009.  Mr. Chappuis received an M.B.A. with honors, from the Columbia University Graduat e School of Business in 1998 and a B.A. degree in Finance from Tulane University in 1991.

 
Effective December 3, 2007, Mr. Christian Angstadt, age 48, serves as Chief Financial Officer of Demeter.  He is an Executive Director within Morgan Stanley’s Financial Control Group.  Mr. Angstadt also serves as Chief Financial Officer for Morgan Stanley Trust NA, and is responsible for the financial management of the regulated bank. Since joining Morgan Stanley in April 1990, Mr. Angstadt has held several positions within the firm’s Financial Control Group, mostly supporting the Asset Management segment (including Chief Financial Officer for Morgan Stanley Asset Management Operations and Morgan Stanley Trust FSB).  Mr. Angstadt received a B.A. degree in Accounting from Montclair University.
 
All of the foregoing directors have indefinite terms.
 

 
- 54 -
 

 
 
 

Section 16(a) Beneficial Ownership Reporting Compliance
 
To the Partnership’s knowledge, all required Section 16(a) filings during the fiscal year ended December 31, 2009, were timely and correctly made.

The Partnership has not adopted a code of ethics that applies to the Partnership’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  The Partnership is operated by its general partner, Demeter.  The President, Chief Financial Officer, and each member of the Board of Directors of Demeter are employees of Morgan Stanley or Morgan Stanley Smith Barney and are subject to the code of ethics adopted by Morgan Stanley, the text of which can be viewed on Morgan Stanley’s website at http://www.morganstanley.com/individual/ ourcommitment/codeofconduct.html.

The Audit Committee
The Partnership is operated by its general partner, Demeter, and has no audit committee.  However, Demeter has a Disclosure Committee that meets quarterly to review periodic filings made by the Partnership for which Demeter acts as the general partner.  Demeter’s Disclosure Committee reports directly to the Board of Directors of Demeter which serves as its audit committee.

Item 11.  EXECUTIVE COMPENSATION
The Partnership has no directors and executive officers.  As a limited partnership, the business of the Partnership is managed by Demeter, which is responsible for the administration of the business affairs of the Partnership but receives no compensation for such services.
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Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
  MANAGEMENT AND RELATED STOCKHOLDER MATTERS

(a)  Security Ownership of Certain Beneficial Owners – At December 31, 2009, there were no persons known to be beneficial owners of more than 5 percent of the Units.

(b)  Security Ownership of Management – At December 31, 2009, Demeter owned 124,961.769 Units of general partnership interest, representing a 1.02 percent interest in the Partnership.

(c)  Changes in Control – None.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
 DIRECTOR INDEPENDENCE


Refer to Note 5 – “Related Party Transactions” of “Notes to Financial Statements”, in the accompanying Annual Report to Limited Partners for the year ended December 31, 2009, which is incorporated by reference to Exhibit 13.01 of this Form 10-K.  In its capacity as the Partnership’s retail commodity broker, MS&Co. received commodity brokerage fees (paid and accrued by the Partnership) of $30,514,021 for the year ended December 31, 2009.

Item 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES
MS&Co. on behalf of the Partnership, pays all accounting fees.  The Partnership reimburses MS&Co. through the brokerage fees it pays, as discussed in the Notes to Financial Statements in the Annual Report to the Limited Partners for the year ended December 31, 2009.

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(1)  Audit Fees.  The aggregate fees for professional services rendered by Deloitte & Touche LLP in connection with their audit of the Partnership’s financial statements and review of the financial statements included in the Quarterly Reports on Form 10-Q, audit of Management’s assessments of the effectiveness of the internal control over financial reporting, and in connection with statutory and regulatory filings were approximately $66,652 for the year ended December 31, 2009, and $62,271 for the year ended December 31, 2008.

(2)  Audit-Related Fees.  None.

(3)  Tax Fees. The Partnership did not pay Deloitte & Touche LLP any amounts in 2009 and 2008 for professional services in connection with tax compliance, tax advice, and tax planning.  The Partnership engaged another unaffiliated professional firm to provide services in connection with tax compliance, tax advice, and tax planning.

(4)  All Other Fees.  None.
Because the Partnership has no audit committee, the Board of Directors of Demeter, its general partner, functions as the audit committee with respect to the Partnership.  The Board of Directors of Demeter has not established pre-approval policies and procedures with respect to the engagement of audit or permitted non-audit services rendered to the Partnership.  Consequently, all audit and permitted non-audit services provided by Deloitte & Touche LLP that are borne by MS&Co. through the brokerage fees paid for by the Partnership are approved by Morgan Stanley’s Board Audit Committee and the Board of Directors of Demeter.

 - 57 -

 
 
 

PART IV

Item 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES

1. Listing of Financial Statements
The following financial statements and report of independent registered public accounting firm, all appearing in the accompanying Annual Report to Limited Partners for the year ended December 31, 2009, are incorporated by reference to Exhibit 13.01 of this Form 10-K:
 
-
Report of Deloitte & Touche LLP, independent registered public accounting firm.

 
-
Statements of Financial Condition, including the Condensed Schedules of Investments, as of December 31, 2009 and 2008.

 
-
Statements of Operations, Changes in Partners' Capital, and Cash Flows for the years ended December 31, 2009, 2008, and 2007.

-           Notes to Financial Statements.


With the exception of the aforementioned information and the information incorporated in Items 7, 8, and 13, the Annual Report to Limited Partners for the year ended December 31, 2009, is not deemed to be filed with this report.

2. Listing of Financial Statement Schedules
No financial statement schedules are required to be filed with this report.

3. Exhibits
For the exhibits incorporated by reference or filed herewith to this report, refer to Exhibit Index on Pages E-1 to E-4.
- 58 -

 
 
 

SIGNATURE


Pursuant to the requirements of the Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


 
MORGAN STANLEY SMITH BARNEY SPECTRUM SELECT L.P.
  
 
(Registrant)
  
       
 
By:
Demeter Management LLC
  
   
(General Partner)
  
       
March 29, 2010
By:
/s/Walter Davis
  
   
Walter Davis,
  
   
President
  

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Demeter Management LLC

BY:
/s/
Walter Davis
  
March 29, 2010
   
Walter Davis, President
    
         
 
/s/
Frank Zafran
  
March 29, 2010
   
Frank Zafran, Director
    
         
 
/s/
Douglas J. Ketterer
  
March 29, 2010
   
Douglas J. Ketterer, Director
    
         
 
/s/
Harry Handler
  
March 29, 2010
   
Harry Handler, Director
    
         
 
/s/
Jose A. Morales
  
March 29, 2010
   
Jose A. Morales, Director
    
         
 
/s/
Michael P. McGrath
  
March 29, 2010
   
Michael P. McGrath, Director
    
         
 
/s/
Jacques Chappuis
  
March 29, 2010
   
Jacques Chappuis, Director
    
         
 
/s/
Christian Angstadt
  
March 29, 2010
   
Christian Angstadt, Chief Financial Officer
    

- 59 -

 
 

 
 
 


EXHIBIT INDEX
ITEM
 
3.01
Form of Amended and Restated Limited Partnership Agreement of the Partnership is incorporated by reference to Exhibit A of the Partnership’s Prospectus, dated May 1, 2008, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 on May 8, 2008.
 
3.01(a)
Amendment No. 1 to the Amended and Restated Limited Partnership Agreement of the Partnership, dated May 31, 2009, is incorporated by reference to Exhibit 3.01(a) of the Partnership’s Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on June 4, 2009.
 
3.02
Certificate of Limited Partnership, dated March 19, 1991, is incorporated by reference to Exhibit 3.02 of the Partnership’s Registration Statement on Form S-1 (File No. 333-47829) filed with the Securities and Exchange Commission on March 12, 1998.
 
3.03  
Certificate of Amendment of Certificate of Limited Partnership, dated April 28, 1998 (changing its name from Dean Witter Select Futures Fund L.P.), is incorporated by reference to Exhibit 3.03 of the Partnership's 10-K for fiscal year ended December 31, 1998, filed with the  Securities and Exchange Commission on March 31, 1999.
 
3.04  
Certificate of Amendment of Certificate of Limited Partnership, dated April 6, 1999 (changing its name from Dean Witter Spectrum Select L.P.), is incorporated by reference to Exhibit 3.03 of the Partnership's Registration Statement on Form S-1 (File No. 333-68773) filed with the Securities and Exchange Commission on April 12, 1999.
 
3.05
Certificate of Amendment of Certificate of Limited Partnership, dated November 1, 2001 (changing its name from Morgan Stanley Dean Witter Spectrum Select L.P.), is incorporated by reference to Exhibit 3.01 of the Partnership’s Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001.
 
3.06
Certificate of Amendment of Certificate of Limited Partnership, dated June 1, 2009, (changing the name and mailing address of the general partner of the Partnership), is incorporated by reference to Exhibit 3.06 of the Partnership’s Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on June 4, 2009.
 
3.07
Certificate of Amendment of Certificate of Limited Partnership, dated September 29, 2009 (changing its name from Morgan Stanley Spectrum Select L.P. to Morgan Stanley Smith Barney Spectrum Select L.P.), is incorporated by reference to Exhibit 3.07 of the Partnership’s form 8-K (File No. 0-19511) filed with the Securities and Exchcnage Commission on October 5, 2009.
 

 

 
 
E-1

 
 
 

 
10.01
Amended and Restated Management Agreement, dated as of June 1, 1998, among the Partnership, Demeter, and Rabar Market Research, Inc. is incorporated by reference to Exhibit 10.01 of the Partnership's Form 10-K (File No. 0-19511) for fiscal year ended December 31, 1998, filed with the Securities and Exchange Commission on March 31, 1999.

10.01(a)
Amendment No. 1 to Amended and Restated Management Agreement among the Partnership, Demeter, and Rabar Market Research, Inc., dated as of October 3, 2006, is incorporated by reference to Exhibit 10.01(a) of the Partnership’s Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on October 10, 2006.

10.02
Amended and Restated Management Agreement, dated as of June 1, 1998, among the Partnership, Demeter, and EMC Capital Management, Inc., is incorporated by reference to Exhibit 10.02 of the Partnership's Form 10-K (File No. 0-19511) for fiscal year ended December 31, 1998, filed with the Securities and Exchange Commission on March 31, 1999.

10.02(a)
Amendment No. 1 to Amended and Restated Management Agreement among the Partnership, Demeter, and EMC Capital Management, Inc., dated as of October 3, 2006, is incorporated by reference to Exhibit 10.02(a) of the Partnership’s Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on October 10, 2006.

10.03
Amended and Restated Management Agreement, dated as of June 1, 1998, among the Partnership, Demeter, and Sunrise Capital Management, Inc., is incorporated by reference to Exhibit 10.03 of the Partnership's Form 10-K (File No. 0-19511) for fiscal year ended December 31, 1998, filed with the Securities and Exchange Commission on March 31, 1999.

10.04
Management Agreement, dated as of January 1, 2004, among the Partnership, Demeter, and Graham Capital Management,  L.P., is incorporated by reference to Exhibit 10.04 of the Partnership’s Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on March 10, 2004.

10.07
Form of Subscription and Exchange Agreement and Power of Attorney to be executed by purchasers of Units is incorporated by reference to Exhibit B of the Partnership’s Prospectus, dated May 1, 2008, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 on May 8, 2008.

10.10
Escrow Agreement, dated as of July 25, 2007, among The Bank of New York, Demeter, and Morgan Stanley & Co. Incorporated, is incorporated by reference to Exhibit 10.10 of the Partnership’s Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on July 31, 2007.

10.11
Form of Subscription Agreement Update Form to be executed by purchasers of Units is incorporated by reference to Exhibit C of the Partnership’s Prospectus, dated May 1, 2008, filed with the Securities and Exchange Commission pursuant to Rule 424(b)(3) under the Securities Act of 1933 on May 8, 2008.
 
E-2

 
 
 

 
10.12
Amended and Restated Customer Agreement between the Partnership and Morgan Stanley DW, dated as of October 16, 2000, is incorporated by reference to Exhibit 10.01 of the Partnership’s Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001.

10.12(a)
Amendment No. 1 to the Amended and Restated Customer Agreement between the Partnership and Morgan Stanley DW Inc., dated July 1, 2005, is incorporated by reference to Exhibit 10.12(a) of the Partnership’s Form 10-Q (File No. 0-19511) filed with the Securities and Exchange Commission on August 10, 2005.

10.13
Commodity Futures Customer Agreement between MS&Co. and the Partnership, and acknowledged and agreed to by Morgan Stanley DW, dated as of June 6, 2000, is incorporated by reference to Exhibit 10.02 of the Partnership’s For8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001.

10.14
Customer Agreement between the Partnership and MSIP dated as of June 6, 2000, is incorporated by reference to Exhibit 10.04 of the Partnership’s Form 8-K (File No.
 
0-19511) filed with the Securities and Exchange Commission on November 1, 2001.

10.15
Foreign Exchange and Options Master Agreement between MS&Co. and the Partnership, dated as of April 30, 2000, is incorporated by reference to Exhibit 10.05 of the Partnership’s Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001.

10.16
Management Agreement, dated as of May 1, 2001, among the Partnership, Demeter, and Northfield Trading L.P., is incorporated by reference to Exhibit 10.01 of the Partnership’s Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on April 25, 2001.

10.17
Securities Account Control Agreement between the Partnership and MS&Co., dated as of May 1, 2000, is incorporated by reference to Exhibit 10.03 of the Partnership’s Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on November 1, 2001.

10.19
Management Agreement, dated as of October 9, 2007, among the Partnership, Demeter, and Altis Partners (Jersey) Limited, is incorporated by reference to Exhibit 10.19 of the Partnership’s Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on October 15, 2007.

10.19(a)
Amendment No. 1 to Management Agreement among the Partner-ship, Demeter, and Altis Partners (Jersey) Limited, dated as of July 28, 2008, is incorporated by reference to Exhibit 10.19 of the Partnership’s Form 8-K (File No. 0-19511) filed with the Securities and Exchange Commission on August 1, 2008.




 
E-3

 
 
 


 
13.01  
December 31, 2009, Annual Report to Limited Partners is filed herewith.
 
31.01
Certification of President of Demeter Management LLC, the general partner of the Partnership pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
31.02
Certification of Chief Financial Officer of Demeter    Management LLC, the general partner of the Partnership pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
32.01
Certification of President of Demeter Management LLC, the general partner of the Partnership, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
32.02
Certification of Chief Financial Officer of Demeter Management LLC, the general partner of the Partnership, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
 
E-4


 
 
 



 
 


EX-31.01 2 dwsfex3101.htm EXHIBIT dwsfex3101.htm


EXHIBIT 31.01

CERTIFICATIONS

I, Walter Davis, certify that:
1.  
I have reviewed this annual report on Form 10-K of Morgan Stanley Smith Barney Spectrum Select L.P.;


2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;


4.  
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:


a)  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed  under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)  
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)  
 Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably  likely to materially affect, the registrant’s internal control over financial reporting; and






 
 
 


5.  
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 
a)
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect  the registrant’s ability to record, process, summarize, and report financial information; and

 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.



Date:   March 29, 2010                                                             /s/      Walter Davis                                            60;      
Walter Davis
President
Demeter Management LLC,
general partner of the registrant



 
 

EX-31.02 3 dwsfex3102.htm EXHIBIT dwsfex3102.htm


                                EXHIBIT 31.02
CERTIFICATIONS
I, Christian Angstadt, certify that:
1.
I have reviewed this annual report on Form 10-K of Morgan Stanley Smith Barney Spectrum Select L.P.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed   under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this  report is being prepared;

 
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably  likely to materially affect, the registrant’s internal control over financial reporting; and







 
 
 


5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 
a)
All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and   report financial information; and

 
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.






Date:   March 29, 2010                                                             /s/      Christian Angstadt                                           60;                  
Christian Angstadt
Chief Financial Officer
Demeter Management LLC,
general partner of the registrant


























 EX-32.01 4 dwsfex3201.htm EXHIBIT dwsfex3201.htm


                                        EXHIBIT 32.01



CERTIFICATION OF PRESIDENT PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002




In connection with the Annual Report of Morgan Stanley Smith Barney Spectrum Select L.P. (the “Partnership”) on Form 10-K for the period ended December 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Walter Davis, President of Demeter Management LLC, the general partner of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
 
(1)  
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
(2)  
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.
 





By:             /s/            Walter Davis                                                      

Name:                   Walter Davis
Title:                      President of Demeter Management LLC,
general partner of the registrant

Date:                      March 29, 2010









 
 
 

EX-32.02 5 dwsfex3202.htm EXHIBIT dwsfex3202.htm

                                  EXHIBIT 32.02


CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002




In connection with the Annual Report of Morgan Stanley Smith Barney Spectrum Select L.P. (the “Partnership”) on Form 10-K for the period ended December 31, 2009, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Christian Angstadt, Chief Financial Officer of Demeter Management LLC, the general partner of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
 
 
(1)
  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 
(2)
  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.






By:             /s/            Christian Angstadt                                                      

Name:                    Christian Angstadt
Title:                      Chief Financial Officer of Demeter Management LLC,
general partner of the registrant

Date:                      March 29, 2010




 

 

 


 EX-13.01 6 dtype1spectann09.txt MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES December 31, 2009 Annual Report [LOGO] MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES HISTORICAL FUND PERFORMANCE Presented below is the percentage change in Net Asset Value per Unit from the start of every calendar year each Fund has traded. Also provided is the inception-to-date return and the compound annualized return since inception for each Fund. Past performance is no guarantee of future results.
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 FUND % % % % % % % % % % % % % % % % % - ------------------------------------------------------------------------------------------------------------------------------- Spectrum Currency....... -- -- -- -- -- -- -- -- -- 11.7 11.1 12.2 12.4 (8.0) (18.3) (3.4) (13.5) (6 mos.) - ------------------------------------------------------------------------------------------------------------------------------- Spectrum Global Balanced....... -- -- -- (1.7) 22.8 (3.6) 18.2 16.4 0.8 0.9 (0.3) (10.1) 6.2 (5.6) 4.2 2.4 0.2 (2 mos.) - ------------------------------------------------------------------------------------------------------------------------------- Spectrum Select......... 31.2 (14.4) 41.6 (5.1) 23.6 5.3 6.2 14.2 (7.6) 7.1 1.7 15.4 9.6 (4.7) (5.0) 5.9 7.5 (5 mos.) - ------------------------------------------------------------------------------------------------------------------------------- Spectrum Strategic...... -- -- -- 0.1 10.5 (3.5) 0.4 7.8 37.2 (33.1) (0.6) 9.4 24.0 1.7 (2.6) 20.9 5.0 (2 mos.) - ------------------------------------------------------------------------------------------------------------------------------- Spectrum Technical...... -- -- -- (2.2) 17.6 18.3 7.5 10.2 (7.5) 7.8 (7.2) 23.3 23.0 4.4 (5.4) 5.4 (14.2) (2 mos.) - -------------------------------------------------------------------------------------------------------------------------------
INCEPTION- COMPOUND TO-DATE ANNUALIZED 2008 2009 RETURN RETURN FUND % % % % - -------------------------------------------------- Spectrum Currency....... 13.4 (10.1) 0.3 0.0 - -------------------------------------------------- Spectrum Global Balanced....... 12.0 (13.0) 52.3 2.8 - -------------------------------------------------- Spectrum Select......... 30.6 (7.0) 279.6 7.5 - -------------------------------------------------- Spectrum Strategic...... 4.5 1.6 91.3 4.4 - -------------------------------------------------- Spectrum Technical...... 12.6 (9.8) 105.3 4.9 - --------------------------------------------------
DEMETER MANAGEMENT LLC 522 Fifth Avenue, 13th Floor New York, NY 10036 Telephone (212) 296-1999 MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES ANNUAL REPORT 2009 Dear Limited Partner: This marks the tenth annual report for Morgan Stanley Smith Barney Spectrum Currency L.P., the sixteenth annual report for Morgan Stanley Smith Barney Spectrum Global Balanced L.P., Morgan Stanley Smith Barney Spectrum Strategic L.P., and Morgan Stanley Smith Barney Spectrum Technical L.P., and the nineteenth annual report for Morgan Stanley Smith Barney Spectrum Select L.P. The Net Asset Value per Unit for each of the five Morgan Stanley Smith Barney Spectrum Series Funds (formerly, Morgan Stanley Spectrum Series Funds) ("Fund(s)") as of December 31, 2009, was as follows:
% CHANGE FUNDS N.A.V. FOR YEAR ----------------------------------------- Spectrum Currency $10.03 -10.1% ----------------------------------------- Spectrum Global Balanced $15.23 -13.0% ----------------------------------------- Spectrum Select $37.96 -7.0% ----------------------------------------- Spectrum Strategic $19.13 1.6% ----------------------------------------- Spectrum Technical $20.53 -9.8% -----------------------------------------
Since its inception in July 2000, Spectrum Currency has returned 0.3% (a compound annualized return of 0.0%). Since their inception in November 1994, Spectrum Global Balanced has returned 52.3% (a compound annualized return of 2.8%), Spectrum Strategic has returned 91.3% (a compound annualized return of 4.4%), and Spectrum Technical has returned 105.3% (a compound annualized return of 4.9%). Since its inception in August 1991, Spectrum Select has returned 279.6% (a compound annualized return of 7.5%). Detailed performance information for each Fund is located in the body of the financial report. (Note: all returns are net of all fees). For each Fund, we provide a trading results by sector chart that portrays trading gains and trading losses for the year in each sector in which the Fund participates. In the case of Spectrum Currency, we provide the trading gains and trading losses for the five major currencies in which the Fund participates, and composite information for all other "minor" currencies traded within the Fund. The trading results by sector charts indicate the year's composite percentage returns generated by the specific assets dedicated to trading within each market sector in which each Fund participates. Please note that there is not an equal amount of assets in each market sector, and the specific allocations of assets by a Fund to each sector will vary over time within a predetermined range. Below each chart is a description of the factors that influenced trading gains and trading losses within each Fund during the year. EFFECTIVE OCTOBER 1, 2009, ROTELLA CAPITAL MANAGEMENT ("ROTELLA") TEMPORARILY WAIVED THE MANAGEMENT FEE IT RECEIVES FROM SPECTRUM TECHNICAL. THE WAIVER OF THE MANAGEMENT FEE REMAINED IN EFFECT THROUGH DECEMBER 31, 2009. EFFECTIVE JANUARY 1, 2010, THE PAYMENT OF THE MANAGEMENT FEE TO ROTELLA WAS REINSTATED. A FURTHER DESCRIPTION OF THE MANAGEMENT FEE PAID TO ROTELLA BY SPECTRUM TECHNICAL CAN BE LOCATED IN NOTE 6 OF THE NOTES TO FINANCIAL STATEMENTS. Should you have any questions concerning this report, please feel free to contact Demeter Management LLC, 522 Fifth Avenue, 13th Floor, New York, NY 10036, or your Morgan Stanley Smith Barney Financial Advisor. I hereby affirm, that to the best of my knowledge and belief, the information contained in this report is accurate and complete. Past performance is no guarantee of future results. Sincerely, /s/ Walter Davis Walter J. Davis Chairman of the Board of Directors and President Demeter Management LLC, General Partner of Morgan Stanley Smith Barney Spectrum Currency L.P. Morgan Stanley Smith Barney Spectrum Global Balanced L.P. Morgan Stanley Smith Barney Spectrum Select L.P. Morgan Stanley Smith Barney Spectrum Strategic L.P. Morgan Stanley Smith Barney Spectrum Technical L.P. Managed futures investments are speculative, involve a high degree of risk, use significant leverage, are generally illiquid, have substantial charges, are subject to conflicts of interest, and are suitable only for the risk capital portion of an investor's portfolio. Before investing in any managed futures investment, qualified investors should read the prospectus or offering documents carefully for additional information with respect to charges, expenses, and risks. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. This report is based on information from multiple sources and Morgan Stanley Smith Barney makes no representation as to the accuracy or completeness of information from sources outside of Morgan Stanley Smith Barney. This page intentionally left blank. MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P. (FORMERLY, MORGAN STANLEY SPECTRUM CURRENCY L.P.) [CHART] Year Ended December 31, 2009 ----------------------- Australian dollar 2.39% British pound -0.44% Euro -1.58% Japanese yen -1.39% Swiss franc -1.29% Minor Currencies -1.34% Note:Reflects trading results only and does not include fees or interest income. Minor currencies may include, but are not limited to, the South African rand, Thai baht, Singapore dollar, Mexican peso, New Zealand dollar, Polish zloty, Brazilian real, Norwegian krone, Swedish krona, Czech koruna, Chilean peso, Russian ruble, and Taiwan dollar. FACTORS INFLUENCING ANNUAL TRADING LOSSES: .. The most significant trading losses were incurred, primarily during March and April, from short positions in the Mexican peso, euro, and Canadian dollar versus the U.S. dollar as the value of the U.S. dollar moved lower after a government report showed U.S. employers cut fewer jobs than forecast. During July, losses were recorded from long positions in the Mexican peso versus the U.S. dollar as the value of the Mexican peso declined during the first half of the month on concerns that the Mexican economy might take longer to recover from a recession than investors previously estimated. Newly established short positions in the Mexican peso versus the U.S. dollar incurred additional losses during August, September, and October as the value of the Mexican peso rose higher on improved confidence in Mexico's economy. Meanwhile, further losses were incurred during June from long positions in the euro and Canadian dollar versus the U.S. dollar as the value of the U.S. dollar reversed higher against these currencies amid speculation that the U.S. Federal Reserve might raise interest rates following news that U.S. payrolls fell less than expected in May. Additional losses were incurred during July from short positions in the euro versus the U.S. dollar as the value of the euro climbed higher on signs that the recession in the Euro-Zone was abating. During September and October, newly established long positions in the euro versus the U.S. dollar resulted in losses as the value of the euro reversed lower amid concerns regarding the rapid appreciation of the euro at the meeting of Group of 20 ("G-20") leaders. Further losses were incurred from short positions in the Canadian dollar versus the U.S. dollar as the value of the Canadian dollar moved higher during October after crude oil, the nation's biggest export, rallied higher. MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P. (FORMERLY, MORGAN STANLEY SPECTRUM CURRENCY L.P.) FACTORS INFLUENCING ANNUAL TRADING LOSSES: (continued) .. Additional losses were incurred from long positions in the Japanese yen versus the U.S. dollar as the value of the Japanese yen moved lower against most of its rivals during January and February due to speculation that the Bank of Japan might intervene to weaken the currency. Further losses were recorded during March and May from newly established short positions in the Japanese yen as the value of the Japanese yen reversed higher amid optimism that demand for the Japanese currency might strengthen. Losses were also experienced during June from long positions in the Japanese yen versus the U.S. dollar as the value of the U.S. dollar reversed higher amid the aforementioned speculation that the U.S. Federal Reserve might raise interest rates following better-than-expected U.S. economic data. During July and August, both long and short positions in the Japanese yen versus the U.S. dollar resulted in losses as the value of the Japanese yen moved without consistent direction during July and August following conflicting economic data out of Japan. .. Lastly, losses were recorded from short positions in the Swiss franc versus the U.S. dollar, primarily during March and May, as the value of the Swiss franc moved higher against the U.S. dollar after better-than-expected economic data out of Switzerland added to speculation that the Swiss economy might rebound sooner than expected. Losses were also incurred during July and September from short positions in the Swiss franc versus the U.S. dollar as the value of the U.S. dollar reversed lower against the Swiss franc amid investor belief that the U.S. Federal Reserve might keep U.S. interest rates at historic lows. In December, long positions in the Mexican peso, Japanese yen, and Swiss franc versus the U.S. dollar resulted in additional losses as the value of the U.S. dollar moved higher against these currencies amid speculation that the U.S. Federal Reserve might raise interest rates earlier than expected. FACTORS INFLUENCING ANNUAL TRADING GAINS: .. Gains were experienced primarily during April, May, and September from long positions in the Australian dollar, New Zealand dollar, and Brazilian real versus the U.S. dollar. Long positions in the Australian dollar, New Zealand dollar, and Brazilian real versus the U.S. dollar profited as the value of the U.S. dollar moved lower against most of its rivals after a government report showed U.S. employers cut fewer jobs than forecast, which reduced demand for the U.S. dollar as a "safe haven" currency. During October, further gains were experienced from long positions in the Australian dollar, New Zealand dollar, and Brazilian real versus the U.S. dollar as the value of these currencies moved higher against the U.S. dollar amid speculation that the Reserve Bank of Australia, the Reserve Bank of New Zealand, and the Central Bank of Brazil might raise interest rates faster than other developed countries. Additionally, the value of the Australian dollar and New Zealand dollar moved higher throughout a majority of the year in the wake of stronger gold prices. MORGAN STANLEY SMITH BARNEY SPECTRUM GLOBAL BALANCED L.P. (FORMERLY, MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.) [CHART] Year ended December 31, 2009 ---------------------------- Currencies -2.68% Global Interest Rates -2.00% Global Stock Indices 1.75% Energies -2.85% Metals -0.36% Agriculturals -2.03% Note:Reflects trading results only and does not include fees or interest income. FACTORS INFLUENCING ANNUAL TRADING LOSSES: .. The most significant trading losses were incurred within the energy markets primarily during March, April, May, and July from short futures positions in crude oil and its related products as prices moved higher amid positive economic data, which spurred optimism that energy demand might rebound. Additional losses were recorded during October from newly established long futures positions in crude oil and its related products as prices reversed lower after government reports showed U.S. consumer spending dropped for the first time in seven months. .. Losses were experienced in the currency sector primarily during February, March, May, July, and August from short positions in the euro and Mexican peso versus the U.S. dollar as the value of the U.S. dollar moved lower against most of its rivals after a government report showed U.S. employers cut fewer jobs than forecast. Additional losses were incurred, primarily during January and April, from long positions in the euro versus the Canadian dollar as the value of the Canadian dollar moved higher on strength in the commodity markets. MORGAN STANLEY SMITH BARNEY SPECTRUM GLOBAL BALANCED L.P. (FORMERLY, MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.) FACTORS INFLUENCING ANNUAL TRADING LOSSES: (continued) .. Losses were incurred within the agricultural complex primarily during March and June from short futures positions in coffee and feeder cattle as prices rose on speculation that government bailouts might help revive the world economy and boost demand for these commodities. Coffee prices continued to move higher throughout a majority of the third quarter on speculation that adverse weather in Colombia and Brazil might disrupt harvests and tighten supplies, thus resulting in losses for short positions. Further losses in the agricultural complex resulted from long and short futures positions in soybeans as prices moved without consistent direction during July, August, September, and October amid conflicting reports regarding supply and demand. .. Within the global interest rate sector, losses were experienced primarily during January from long positions in U.S. and European fixed-income futures as prices dropped following news that debt sales might increase as governments around the world boosted spending in an effort to ease the deepening economic slump. Additional losses were incurred during April and June from long positions in U.S. and European fixed-income futures as prices moved lower after a pledge from G-20 leaders to support the global economy reduced demand for the relative "safety" of government bonds. Further losses were experienced during December from long positions in U.S., European, and Australian fixed-income futures as prices fell sharply amid concern that an unprecedented supply of government bonds might outweigh demand as governments around the world were issuing record amounts of debt to finance economic stimulus measures. .. Lastly, losses were recorded in the metals sector throughout a majority of the first half of the year from short futures positions in aluminum and tin as prices reversed higher on speculation that economic stimulus plans in the U.S. and China would help boost demand for base metals. Additional losses were incurred in the metals sector, primarily during December, from short positions in nickel futures as prices rose on speculation that demand in China and the U.S., the world's biggest purchasers of base metals, might strengthen as the global economy continued to improve. FACTORS INFLUENCING ANNUAL TRADING GAINS: .. Gains were achieved in the global stock index sector throughout a majority of the second half of the year from long positions in European, U.S., and Pacific Rim equity index futures as prices moved higher due to positive corporate earnings reports, stronger-than-expected economic data, and optimism that the global economy might be stabilizing. MORGAN STANLEY SMITH BARNEY SPECTRUM SELECT L.P. (FORMERLY, MORGAN STANLEY SPECTRUM SELECT L.P.) [CHART] Year Ended December 31, 2009 ----------------------- Currencies -1.30% Global Interest Rates -4.13% Global Stock Indices 3.94% Energies -1.44% Metals 4.03% Agriculturals -0.10% Note:Reflects trading results only and does not include fees or interest income. FACTORS INFLUENCING ANNUAL TRADING LOSSES: .. The most significant trading losses were incurred within the global interest rate sector, primarily during January, March, April, and June, from long positions in U.S., European, and Japanese fixed-income futures as prices dropped following news that debt sales might increase as governments around the world boosted spending in an effort to ease the deepening economic slump. Newly established short positions in European, U.S., and Japanese fixed-income futures resulted in further losses, primarily during July, as prices moved higher on investor sentiment that the slow pace of the global economic recovery and signs of moderate inflation might lead central banks in these regions to maintain low interest rates in the near term. Additional losses were recorded during August from newly established long positions in European fixed-income futures as prices reversed lower at the beginning of the month amid a rise in the European equity markets. During December, further losses were incurred from long positions in U.S. and European fixed-income futures as prices fell sharply amid concern that an unprecedented supply of government bonds might outweigh demand as governments around the world were issuing record amounts of debt to finance economic stimulus measures. .. In the energy sector, losses were experienced primarily during July from short futures positions in crude oil and its related products as prices moved higher during the latter half of the month amid better-than-expected quarterly earnings reports and positive economic data. During August, newly established long futures positions in crude oil and its related products recorded additional losses as prices reversed lower due to above-average U.S. stockpiles. Further losses were incurred during October from long futures positions in crude oil and its related products as prices reversed lower after government reports showed U.S. consumer spending dropped for the first time in seven months. MORGAN STANLEY SMITH BARNEY SPECTRUM SELECT L.P. (FORMERLY, MORGAN STANLEY SPECTRUM SELECT L.P.) FACTORS INFLUENCING ANNUAL TRADING LOSSES: (continued) .. Additional losses were recorded in the currency sector, primarily during March, from short positions in the Swiss franc and euro versus the U.S. dollar as the value of the U.S. dollar decreased relative to most of its rivals following the U.S. Federal Reserve's surprise plans to begin a more aggressive phase of quantitative easing and economic stimulus spending. Additional losses were recorded during June and July from long positions in the Swiss franc and euro versus the U.S. dollar as the value of the U.S. dollar reversed higher against these currencies following better-than-expected U.S. payrolls and durable goods data. Elsewhere, long positions in the Mexican peso versus the U.S. dollar incurred losses, primarily during July and August, as the value of the Mexican peso declined on concerns that Mexico might take longer to recover from a recession than investors previously estimated. Long positions in the British pound versus the U.S. dollar also experienced losses as the British pound fell during August and September on news that U.K. consumer confidence rose to the highest level in more than a year and Bank of England officials indicated inflation in that country might remain low. Lastly, losses were incurred from long positions in the Japanese yen versus the U.S. dollar primarily in December as the value of the U.S. dollar moved higher on speculation that the U.S. Federal Reserve might raise interest rates earlier than expected. .. Smaller losses were recorded in the agricultural complex from long positions in coffee futures, primarily during June, as prices reversed lower and fell throughout a majority of the third quarter amid expectations of higher global output. Elsewhere, losses were recorded from long and short futures positions in the soybean complex as prices moved without consistent direction during July and August amid conflicting reports regarding supply and demand. FACTORS INFLUENCING ANNUAL TRADING GAINS: .. Within the metals complex, gains were achieved primarily during July and August from long futures positions in copper as prices rose following news of an economic expansion in China during the second quarter of 2009, thereby spurring speculation that China's demand for base metals might rise. In December, additional gains were recorded as copper futures prices rose to a 15-month high after workers at the world's second-biggest copper mine in Chile voted to go on strike, thereby threatening the global supply. Meanwhile, gains were achieved from long positions in gold futures primarily during October and November as prices rose due to concerns of a rise in inflation, as well as amid a drop in the value of the U.S. dollar. .. Lastly, gains were recorded within the global stock index markets throughout July, August, and September from long positions in European, U.S., and Hong Kong equity index futures as prices increased due to positive economic data and increased merger and acquisition activity in the technology sector. Further gains were achieved from long positions in European and U.S. global stock index futures as prices continued to increase throughout November and December after positive economic data and strong corporate earnings reports reinforced optimism that the global economic recovery might be gaining momentum. MORGAN STANLEY SMITH BARNEY SPECTRUM STRATEGIC L.P. (FORMERLY, MORGAN STANLEY SPECTRUM STRATEGIC L.P.) [CHART] Year ended December 31, 2009 ---------------------------- Currencies -5.82% Global Interest Rates 3.52% Global Stock Indices -2.04% Energies -0.69% Metals 6.76% Agriculturals 7.89% Note:Reflects trading results only and does not include fees or interest income. FACTORS INFLUENCING ANNUAL TRADING GAINS: .. The most significant trading gains were experienced in the agricultural markets throughout a majority of the second quarter from long positions in sugar futures as prices moved higher on expectations for a drop in global production. Furthermore, sugar prices continued to move higher throughout the third quarter, reaching 28-year highs, amid speculation that the global production deficit might continue for two consecutive years, triggered by increasing demand from India, the world's largest consumer. Sugar prices continued to surge during December amid news that excess rain in Brazil, the world's biggest producer of sugar, hampered harvesting and curbed output. Elsewhere, gains were achieved primarily during July, September, and October from long positions in cocoa futures as prices moved higher on supply concerns due to news of a smaller-than-average crop this year and after reports showed inventories reached a seven-month low. .. Additional gains were recorded in the metals complex throughout a majority of the year from long positions in copper, zinc, and nickel futures as prices moved higher due to sentiment that efforts by the Chinese government to revive that nation's economy might boost demand for base metals. Meanwhile, long positions in palladium futures also resulted in gains as prices moved higher throughout a majority of the year amid news of a possible strike at a South African producer, as well as expectations for increased demand. MORGAN STANLEY SMITH BARNEY SPECTRUM STRATEGIC L.P. (FORMERLY, MORGAN STANLEY SPECTRUM STRATEGIC L.P.) FACTORS INFLUENCING ANNUAL TRADING GAINS: (continued) .. Within the global interest rate sector, gains were recorded during January, April, August, September, and December, from short positions in U.S. fixed-income futures as prices dropped following news that debt sales might increase as governments around the world boosted spending in an effort to ease the deepening economic slump. Elsewhere, long positions in short-term European interest rate futures resulted in gains as prices increased during January after a drop in global equity markets and as growing concerns about the global economic recession fueled demand for the relative "safety" of government assets. Prices continued to move higher during March, May, July, and September after the European Central Bank cut its benchmark interest rate to a record 1.5%, thus resulting in further gains for long positions. FACTORS INFLUENCING ANNUAL TRADING LOSSES: .. In the currency sector, losses were experienced primarily during February, March, April, May, and December from long positions in the Japanese yen versus the U.S. dollar and euro as the value of the Japanese yen reversed lower against most of its rivals amid speculation that the Bank of Japan might intervene to weaken the currency, as well as on news that Japan's trade deficit substantially increased. Meanwhile, additional losses were recorded, primarily during January, March, April, and June, from short positions in the Canadian dollar versus the U.S. dollar as the value of the U.S. dollar decreased relative to most of its rivals following the U.S. Federal Reserve's surprise plans to begin a more aggressive phase of quantitative easing and economic stimulus spending. Elsewhere, losses were recorded, primarily during July and August, from short positions in the Swedish krona, Mexican peso, Canadian dollar, and Korean won versus the U.S. dollar as the value of the U.S. dollar moved lower against these currencies on speculation that the U.S. Federal Reserve might keep borrowing rates low. .. Within the global stock index sector, losses were experienced primarily during March and April from short positions in U.S., European, and Pacific Rim equity index futures as prices reversed higher after G-20 officials indicated that participating governments and central banks would "take whatever further actions are necessary to stabilize the financial system". Prices continued to move higher during July and August due to positive economic data and increased merger and acquisition activity in the technology sector, resulting in further losses for short positions in U.S., European, and Pacific Rim equity index futures. Newly established long positions in U.S., European, and Pacific Rim stock index futures resulted in additional losses during October as prices reversed lower towards the end of the month amid speculation that the recent price rally in global equities might have outpaced prospects for economic growth. .. Lastly, smaller losses were incurred within the energy sector primarily during January from long futures positions in crude oil and its related products as prices moved lower amid speculation that the ongoing global economic recession might further erode energy demand. Newly established short futures positions in crude oil and its related products resulted in losses during March, May, and July as prices rose on hopes that the decision by the U.S. Federal Reserve to buy government bonds might boost energy demand. During August, newly established long futures positions in crude oil and its related products recorded additional losses as prices reversed lower due to above-average U.S. stockpiles. MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P. (FORMERLY, MORGAN STANLEY SPECTRUM TECHNICAL L.P.) [CHART] Year ended December 31, 2009 ---------------------------- Currencies -1.39% Global Interest Rates -4.02% Global Stock Indices 2.38% Energies -2.11% Metals 1.64% Agriculturals 1.59% Note:Reflects trading results only and does not include fees or interest income. FACTORS INFLUENCING ANNUAL TRADING LOSSES: .. The most significant trading losses were recorded in the global interest rate sector during January from long positions in U.S., European, and Australian fixed-income futures as prices declined following news that debt sales might increase as governments around the world boosted spending in an effort to ease the deepening economic slump. Additional losses were incurred during April and June from long positions in U.S., European, and Australian fixed-income futures as prices moved lower after a pledge from G-20 leaders to support the global economy reduced demand for the relative "safety" of government bonds. In December, prices of U.S. and European fixed-income futures continued to fall sharply amid concern that an unprecedented supply of government bonds might outweigh demand, thus resulting in further losses for long positions. .. Within the energy sector, losses were incurred primarily during March, May, and July from short futures positions in crude oil and its related products as prices reversed higher on optimism that a possible rebound in global economic growth might boost energy demand. Additional losses were incurred during August, October, and December from newly established long futures positions in crude oil and its related products as prices reversed lower due to above-average U.S. stockpiles. MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P. (FORMERLY, MORGAN STANLEY SPECTRUM TECHNICAL L.P.) FACTORS INFLUENCING ANNUAL TRADING LOSSES: (continued) .. Smaller losses were recorded in the currency sector during January from long positions in the Japanese yen versus the U.S. dollar as the value of the Japanese yen reversed lower against most of its rivals amid speculation that the Bank of Japan might intervene to weaken the currency, as well as on news that Japan's trade deficit substantially increased. Further losses were recorded during April and May from short positions in the British pound, Canadian dollar, euro, and Japanese yen versus the U.S. dollar as the value of the U.S. dollar moved lower against these currencies after a government report showed U.S. employers cut fewer jobs than forecast, which reduced demand for the U.S. dollar as a "safe haven" currency. Additional losses were incurred during June from long positions in the British pound, Canadian dollar, euro, and Japanese yen versus the U.S. dollar as the value of the U.S. dollar reversed higher against these currencies amid speculation that the U.S. Federal Reserve might raise interest rates. Long positions in the Canadian dollar, euro, and Japanese yen versus the U.S. dollar resulted in further losses during August as the value of the U.S. dollar was supported higher against these currencies after reports revealed a rise in U.S. durable goods orders and news that U.S. new home sales reached a four-and-a-half year high in July. Short positions in the British pound versus the U.S. dollar also recorded losses as the value of the British pound increased relative to the U.S. dollar during October amid positive economic data out of the United Kingdom. Lastly, in December, losses were incurred from long positions in the Japanese yen, euro, Australian dollar, and Swiss franc versus the U.S. dollar as the value of the U.S. dollar reversed higher against these currencies amid speculation that the U.S. Federal Reserve might raise interest rates earlier than expected. FACTORS INFLUENCING ANNUAL TRADING GAINS: .. In the global stock index sector, gains were experienced throughout a majority of the third quarter from long positions in European, U.S., Taiwanese, and Hong Kong equity index futures as prices increased due to strong corporate earnings and increased merger and acquisition activity in the technology sector. Prices continued to climb higher in November and December amid signs that the global economy might be recovering, thus resulting in further gains for long positions. .. Within the metals sector, gains were achieved primarily during September, October, and November from long positions in gold futures as prices moved higher amid a drop in the value of the U.S. dollar, which spurred demand for precious metals as an alternative investment. Elsewhere, long positions in zinc and copper futures resulted in gains throughout a majority of the second half of the year as prices trended higher due to sentiment that efforts by the Chinese government to revive that nation's economy might boost demand for base metals. .. Smaller gains were experienced in the agricultural complex throughout a majority of the third quarter from long futures positions in sugar as prices moved sharply higher amid speculation that a global production deficit might continue for two consecutive years, triggered by increasing demand from India, the world's largest consumer. Sugar prices continued to move higher in December, reaching a 28-year high, amid news that excess rain in Brazil, the world's biggest producer of sugar, hampered harvesting and curbed output. MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Demeter Management LLC ("Demeter"), the general partner of Morgan Stanley Smith Barney Spectrum Currency L.P. (formerly, Morgan Stanley Spectrum Currency L.P.), Morgan Stanley Smith Barney Spectrum Global Balanced L.P. (formerly, Morgan Stanley Spectrum Global Balanced L.P.), Morgan Stanley Smith Barney Spectrum Select L.P. (formerly, Morgan Stanley Spectrum Select L.P.), Morgan Stanley Smith Barney Spectrum Strategic L.P. (formerly, Morgan Stanley Spectrum Strategic L.P.), and Morgan Stanley Smith Barney Spectrum Technical L.P. (formerly, Morgan Stanley Spectrum Technical L.P.) (individually, a "Partnership", or collectively, the "Partnerships"), is responsible for the management of the Partnerships. Management of Demeter ("Management") is responsible for establishing and maintaining adequate internal control over financial reporting. The internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Partnerships' internal control over financial reporting includes those policies and procedures that: .. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Partnerships; .. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Partnerships' transactions are being made only in accordance with authorizations of Management and directors of Demeter; and .. Provide reasonable assurance regarding prevention or timely detection and correction of unauthorized acquisition, use or disposition of the Partnerships' assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management assessed the effectiveness of each Partnership's internal control over financial reporting as of December 31, 2009. In making this assessment, Management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control--Integrated Framework. Based on our assessment and those criteria, Management believes that each Partnership maintained effective internal control over financial reporting as of December 31, 2009. Deloitte & Touche LLP, the Partnerships' independent registered public accounting firm, has issued an audit report on the Partnerships' internal control over financial reporting. This report, which expresses an unqualified opinion on Management's assessment and on the effectiveness of the Partnerships' internal control over financial reporting, appears under "Report of Independent Registered Public Accounting Firm" on the following page. /s/ Walter Davis Walter J. Davis President Demeter Management LLC /s/ Christian M. Angstadt Christian M. Angstadt Chief Financial Officer Demeter Management LLC New York, New York March 24, 2010 MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Limited Partners and the General Partner of Morgan Stanley Smith Barney Spectrum Currency L.P. (formerly, Morgan Stanley Spectrum Currency L.P.), Morgan Stanley Smith Barney Spectrum Global Balanced L.P. (formerly, Morgan Stanley Spectrum Global Balanced L.P.), Morgan Stanley Smith Barney Spectrum Select L.P. (formerly, Morgan Stanley Spectrum Select L.P.), Morgan Stanley Smith Barney Spectrum Strategic L.P. (formerly, Morgan Stanley Spectrum Strategic L.P.), and Morgan Stanley Smith Barney Spectrum Technical L.P. (formerly, Morgan Stanley Spectrum Technical L.P.): We have audited the accompanying statements of financial condition of Morgan Stanley Smith Barney Spectrum Currency L.P., Morgan Stanley Smith Barney Spectrum Global Balanced L.P., Morgan Stanley Smith Barney Spectrum Select L.P., Morgan Stanley Smith Barney Spectrum Strategic L.P., and Morgan Stanley Smith Barney Spectrum Technical L.P. (collectively, the "Partnerships"), including the condensed schedules of investments, as of December 31, 2009 and 2008, and the related statements of operations, changes in partners' capital, and cash flows for each of the three years in the period ended December 31, 2009. We also have audited the Partnerships' internal control over financial reporting as of December 31, 2009, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Partnerships' management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these financial statements and an opinion on the Partnerships' internal control over financial reporting based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A partnership's internal control over financial reporting is a process designed by, or under the supervision of, the partnership's principal executive and principal financial officers, or persons performing similar functions, and effected by the partnership's general partner, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A partnership's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the partnership; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the partnership are being made only in accordance with authorizations of management and the general partner of the partnership; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the partnership's assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Morgan Stanley Smith Barney Spectrum Currency L.P., Morgan Stanley Smith Barney Spectrum Global Balanced L.P., Morgan Stanley Smith Barney Spectrum Select L.P., Morgan Stanley Smith Barney Spectrum Strategic L.P., and Morgan Stanley Smith Barney Spectrum Technical L.P. as of December 31, 2009 and 2008, and the results of their operations, their changes in partners' capital, and their cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Partnerships maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. /s/ Deloitte & Touche LLP New York, New York March 24, 2010 MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P. (FORMERLY MORGAN STANLEY SPECTRUM CURRENCY L.P.) STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, ------------------------ 2009 2008 ------------ ---------- $ $ ASSETS Trading Equity: Unrestricted cash 61,087,188 92,837,025 Restricted cash 620,523 640,778 ------------ ---------- Total Cash 61,707,711 93,477,803 Net unrealized loss on open contracts (MS&Co.) (462,626) (403,907) Options purchased (premiums paid $1,442 and $45,729, respectively) 121 251 ------------ ---------- Total Trading Equity 61,245,206 93,074,147 Interest receivable (MS&Co.) 853 619 ------------ ---------- Total Assets 61,246,059 93,074,766 ============ ========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 491,924 4,139,379 Accrued brokerage fees (MS&Co.) 239,572 356,847 Accrued management fees 104,162 155,151 Options written (premiums received $0 and $24,780, respectively) -- 251 ------------ ---------- Total Liabilities 835,658 4,651,628 ------------ ---------- PARTNERS' CAPITAL Limited Partners (5,963,360.859 and 7,843,447.630 Units, respectively) 59,798,213 87,533,608 General Partner (61,050.343 and 79,706.343 Units, respectively) 612,188 889,530 ------------ ---------- Total Partners' Capital 60,410,401 88,423,138 ------------ ---------- Total Liabilities and Partners' Capital 61,246,059 93,074,766 ============ ========== NET ASSET VALUE PER UNIT 10.03 11.16 ============ ==========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------------- 2009 2008 2007 ------------- ------------- -------------- $ $ $ INVESTMENT INCOME Interest income (MS&Co.) 59,638 1,120,873 4,909,004 ------------- ------------- -------------- EXPENSES Brokerage fees (MS&Co.) 3,288,790 4,550,496 6,410,711 Management fees 1,429,909 1,978,477 2,787,267 Incentive fee -- 355,472 -- ------------- ------------- -------------- Total Expenses 4,718,699 6,884,445 9,197,978 ------------- ------------- -------------- NET INVESTMENT LOSS (4,659,061) (5,763,572) (4,288,974) ------------- ------------- -------------- TRADING RESULTS Trading profit (loss): Realized (2,992,672) 17,155,471 (9,603,925) Net change in unrealized (39,091) 1,139,401 (6,098,290) ------------- ------------- -------------- Total Trading Results (3,031,763) 18,294,872 (15,702,215) ------------- ------------- -------------- NET INCOME (LOSS) (7,690,824) 12,531,300 (19,991,189) ============= ============= ============== NET INCOME (LOSS) ALLOCATION Limited Partners (7,613,304) 12,396,509 (19,782,415) General Partner (77,520) 134,791 (208,774) NET INCOME (LOSS) PER UNIT Limited Partners (1.13) 1.32 (1.54) General Partner (1.13) 1.32 (1.54) UNITS UNITS UNITS ------------- ------------- -------------- WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING 6,709,462.987 9,457,649.181 12,853,813.902
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SMITH BARNEY SPECTRUM GLOBAL BALANCED L.P. (FORMERLY, MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.) STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, ---------------------- 2009 2008 ----------- ---------- $ $ ASSETS Trading Equity: Unrestricted cash 17,741,979 29,138,620 Restricted cash 950,387 212,233 ----------- ---------- Total Cash 18,692,366 29,350,853 ----------- ---------- Net unrealized gain on open contracts (MS&Co.) 1,347,276 2,560,293 Net unrealized gain on open contracts (MSIP) 23,422 349,094 ----------- ---------- Total net unrealized gain on open contracts 1,370,698 2,909,387 ----------- ---------- Options purchased (premiums paid $1,034 and $0, respectively) 87 -- ----------- ---------- Total Trading Equity 20,063,151 32,260,240 Interest receivable (MS&Co.) 351 274 ----------- ---------- Total Assets 20,063,502 32,260,514 =========== ========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 149,623 1,568,189 Accrued brokerage fees (MS&Co.) 78,937 118,274 Accrued management fees 25,592 38,315 Accrued incentive fee -- 158,261 ----------- ---------- Total Liabilities 254,152 1,883,039 ----------- ---------- PARTNERS' CAPITAL Limited Partners (1,287,159.251 and 1,718,093.175 Units, respectively) 19,608,456 30,071,901 General Partner (13,187.331 and 17,458.331 Units, respectively) 200,894 305,574 ----------- ---------- Total Partners' Capital 19,809,350 30,377,475 ----------- ---------- Total Liabilities and Partners' Capital 20,063,502 32,260,514 =========== ========== NET ASSET VALUE PER UNIT 15.23 17.50 =========== ==========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------- 2009 2008 2007 ------------- ------------- ------------- $ $ $ INVESTMENT INCOME Interest income (MS&Co.) 25,062 445,255 1,712,782 ------------- ------------- ------------- EXPENSES Brokerage fees (MS&Co.) 1,104,183 1,449,871 1,733,526 Management fees 360,248 497,142 478,507 Incentive fee -- 789,211 -- ------------- ------------- ------------- Total Expenses 1,464,431 2,736,224 2,212,033 ------------- ------------- ------------- NET INVESTMENT LOSS (1,439,369) (2,290,969) (499,251) ------------- ------------- ------------- TRADING RESULTS Trading profit (loss): Realized (451,631) 3,668,920 784,684 Net change in unrealized (1,539,636) 1,960,397 (242,776) ------------- ------------- ------------- Total Trading Results (1,991,267) 5,629,317 541,908 ------------- ------------- ------------- NET INCOME (LOSS) (3,430,636) 3,338,348 42,657 ============= ============= ============= NET INCOME (LOSS) ALLOCATION Limited Partners (3,396,166) 3,300,034 43,079 General Partner (34,470) 38,314 (422) NET INCOME (LOSS) PER UNIT Limited Partners (2.27) 1.87 0.03 General Partner (2.27) 1.87 0.03 UNITS UNITS UNITS ------------- ------------- ------------- WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING 1,465,622.529 2,018,745.064 2,409,953.413
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SMITH BARNEY SPECTRUM SELECT L.P. (FORMERLY, MORGAN STANLEY SPECTRUM SELECT L.P.) STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, ----------------------- 2009 2008 ----------- ----------- $ $ ASSETS Trading Equity: Unrestricted cash 422,998,843 601,638,653 Restricted cash 36,820,470 8,756,170 ----------- ----------- Total Cash 459,819,313 610,394,823 ----------- ----------- Net unrealized gain on open contracts (MS&Co.) 6,347,652 19,905,581 Net unrealized gain on open contracts (MSIP) 5,667,649 6,140,183 ----------- ----------- Total net unrealized gain on open contracts 12,015,301 26,045,764 ----------- ----------- Total Trading Equity 471,834,614 636,440,587 Interest receivable (MS&Co.) 6,511 4,300 ----------- ----------- Total Assets 471,841,125 636,444,887 =========== =========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 3,843,227 23,861,804 Accrued brokerage fees (MS&Co.) 2,423,620 3,093,914 Accrued management fees 929,231 1,175,736 Accrued incentive fee -- 2,429,055 ----------- ----------- Total Liabilities 7,196,078 30,560,509 ----------- ----------- PARTNERS' CAPITAL Limited Partners (12,116,838.706 and 14,700,689.307 Units, respectively) 459,902,047 599,790,920 General Partner (124,961.769 and 149,348.769 Units, respectively) 4,743,000 6,093,458 ----------- ----------- Total Partners' Capital 464,645,047 605,884,378 ----------- ----------- Total Liabilities and Partners' Capital 471,841,125 636,444,887 =========== =========== NET ASSET VALUE PER UNIT 37.96 40.80 =========== ===========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------------- 2009 2008 2007 -------------- -------------- -------------- $ $ $ INVESTMENT INCOME Interest income (MS&Co.) 416,522 6,206,206 18,812,196 -------------- -------------- -------------- EXPENSES Brokerage fees (MS&Co.) 30,514,021 34,013,929 31,522,666 Management fees 11,648,733 13,376,153 13,731,691 Incentive fees 822,023 17,391,827 1,066,450 -------------- -------------- -------------- Total Expenses 42,984,777 64,781,909 46,320,807 -------------- -------------- -------------- NET INVESTMENT LOSS (42,568,255) (58,575,703) (27,508,611) -------------- -------------- -------------- TRADING RESULTS Trading profit (loss): Realized 16,042,877 195,783,856 67,781,315 Net change in unrealized (14,030,463) 16,436,714 (2,352,561) -------------- -------------- -------------- Total Trading Results 2,012,414 212,220,570 65,428,754 -------------- -------------- -------------- NET INCOME (LOSS) (40,555,841) 153,644,867 37,920,143 ============== ============== ============== NET INCOME (LOSS) ALLOCATION Limited Partners (40,147,610) 151,981,698 37,498,154 General Partner (408,231) 1,663,169 421,989 NET INCOME (LOSS) PER UNIT Limited Partners (2.84) 9.56 2.18 General Partner (2.84) 9.56 2.18 UNITS UNITS UNITS -------------- -------------- -------------- WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING 13,212,818.036 15,802,082.028 17,899,555.783
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SMITH BARNEY SPECTRUM STRATEGIC L.P. (FORMERLY, MORGAN STANLEY SPECTRUM STRATEGIC L.P.) STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, ------------------------ 2009 2008 ----------- ----------- $ $ ASSETS Investment in BHM I, LLC (cost $58,545,568 and $75,551,419, respectively) 109,611,896 90,392,390 ----------- ----------- Trading Equity: Unrestricted cash 71,151,586 113,863,847 Restricted cash 1,546,618 2,175,923 ----------- ----------- Total Cash 72,698,204 116,039,770 ----------- ----------- Net unrealized gain (loss) on open contracts (MS&Co.) (651,964) 391,494 Net unrealized gain on open contracts (MSIP) 415,967 1,613,170 ----------- ----------- Total net unrealized gain (loss) on open contracts (235,997) 2,004,664 ----------- ----------- Options purchased (premiums paid $4,010,926 and $1,144,180, respectively) 3,483,054 790,178 ----------- ----------- Total Trading Equity 185,557,157 209,227,002 Receivable from Investment in BHM I, LLC 2,950,173 15,894,480 Interest receivable (MS&Co.) 2,470 1,470 ----------- ----------- Total Assets 188,509,800 225,122,952 =========== =========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Options written (premiums received $4,597,583 and $344,612, respectively) 3,985,295 201,784 Redemptions payable 1,547,780 8,467,774 Accrued incentive fee 1,411,766 -- Accrued brokerage fees (MS&Co.) 880,164 1,087,473 Accrued management fees 421,690 508,977 ----------- ----------- Total Liabilities 8,246,695 10,266,008 ----------- ----------- PARTNERS' CAPITAL Limited Partners (9,328,321.804 and 11,299,103.992 Units, respectively) 178,420,459 212,696,497 General Partner (96,338.692 and 114,769.692 Units, respectively) 1,842,646 2,160,447 ----------- ----------- Total Partners' Capital 180,263,105 214,856,944 ----------- ----------- Total Liabilities and Partners' Capital 188,509,800 225,122,952 =========== =========== NET ASSET VALUE PER UNIT 19.13 18.82 =========== ===========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------------- 2009 2008 2007 -------------- -------------- -------------- $ $ $ INVESTMENT INCOME Interest income (MS&Co.) 149,472 2,333,858 7,376,760 -------------- -------------- -------------- EXPENSES Brokerage fees (MS&Co.) 11,170,576 12,935,032 12,796,668 Management fees 5,321,165 5,908,748 5,908,989 Incentive fees 1,783,508 3,578,609 698,113 -------------- -------------- -------------- Total Expenses 18,275,249 22,422,389 19,403,770 -------------- -------------- -------------- NET INVESTMENT LOSS (18,125,777) (20,088,531) (12,027,010) -------------- -------------- -------------- TRADING RESULTS Trading profit (loss): Realized (15,530,111) 10,690,368 29,589,963 Net change in unrealized (1,945,071) 3,575,155 (6,993,476) Realized gain on investment in BHM I, LLC 1,148,140 966,654 -- Unrealized appreciation on investment in BHM I, LLC 36,225,357 14,840,971 -- -------------- -------------- -------------- Total Trading Results 19,898,315 30,073,148 22,596,487 -------------- -------------- -------------- NET INCOME 1,772,538 9,984,617 10,569,477 ============== ============== ============== NET INCOME ALLOCATION Limited Partners 1,752,399 9,880,297 10,454,002 General Partner 20,139 104,320 115,475 NET INCOME PER UNIT Limited Partners 0.31 0.81 0.86 General Partner 0.31 0.81 0.86 UNITS UNITS UNITS -------------- -------------- -------------- WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING 10,166,429.664 11,773,848.462 12,190,131.832
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P. (FORMERLY, MORGAN STANLEY SPECTRUM TECHNICAL L.P.) STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, ------------------------ 2009 2008 ------------ ----------- $ $ ASSETS Trading Equity: Unrestricted cash 337,112,125 517,758,117 Restricted cash 38,759,401 14,196,776 ------------ ----------- Total Cash 375,871,526 531,954,893 ------------ ----------- Net unrealized gain on open contracts (MS&Co.) 8,183,798 15,350,275 Net unrealized gain on open contracts (MSIP) 2,511,873 1,415,128 ------------ ----------- Total net unrealized gain on open contracts 10,695,671 16,765,403 ------------ ----------- Options purchased (premiums paid $192,906 and $47,381, respectively) 185,397 26,406 ------------ ----------- Total Trading Equity 386,752,594 548,746,702 Interest receivable (MS&Co.) 5,334 3,818 ------------ ----------- Total Assets 386,757,928 548,750,520 ============ =========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES Redemptions payable 3,332,464 23,445,292 Accrued brokerage fees (MS&Co.) 1,955,857 2,664,925 Accrued management fees 586,118 989,046 Options written (premiums received $67,908 and $170,031, respectively) 55,219 150,636 Accrued incentive fee -- 691,074 ------------ ----------- Total Liabilities 5,929,658 27,940,973 ------------ ----------- PARTNERS' CAPITAL Limited Partners (18,367,153.109 and 22,657,223.480 Units, respectively) 376,999,886 515,570,112 General Partner (186,516.001 and 230,252.001 Units, respectively) 3,828,384 5,239,435 ------------ ----------- Total Partners' Capital 380,828,270 520,809,547 ------------ ----------- Total Liabilities and Partners' Capital 386,757,928 548,750,520 ============ =========== NET ASSET VALUE PER UNIT 20.53 22.76 ============ ===========
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------------- 2009 2008 2007 -------------- -------------- -------------- $ $ $ INVESTMENT INCOME Interest income (MS&Co.) 354,698 6,519,455 25,152,633 -------------- -------------- -------------- EXPENSES Brokerage fees (MS&Co.) 25,764,849 34,167,890 41,846,536 Management fees 9,505,272 12,727,391 18,228,175 Incentive fees 184,642 11,646,915 5,585,417 -------------- -------------- -------------- Total Expenses 35,454,763 58,542,196 65,660,128 Management fee waived (409,373) -- (1,306,736) -------------- -------------- -------------- Net Expenses 35,045,390 58,542,196 64,353,392 -------------- -------------- -------------- NET INVESTMENT LOSS (34,690,692) (52,022,741) (39,200,759) -------------- -------------- -------------- TRADING RESULTS Trading profit (loss): Realized (5,718,953) 114,853,874 (43,428,101) Net change in unrealized (6,062,972) 5,557,697 (20,612,964) -------------- -------------- -------------- Total Trading Results (11,781,925) 120,411,571 (64,041,065) -------------- -------------- -------------- NET INCOME (LOSS) (46,472,617) 68,388,830 (103,241,824) ============== ============== ============== NET INCOME (LOSS) ALLOCATION Limited Partners (46,005,221) 67,638,716 (102,064,643) General Partner (467,396) 750,114 (1,177,181) NET INCOME (LOSS) PER UNIT Limited Partners (2.23) 2.54 (3.35) General Partner (2.23) 2.54 (3.35) UNITS UNITS UNITS -------------- -------------- -------------- WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING 20,187,874.856 26,059,402.181 30,918,611.010
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P. (FORMERLY, MORGAN STANLEY SPECTRUM CURRENCY L.P.) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
UNITS OF PARTNERSHIP LIMITED GENERAL INTEREST PARTNERS PARTNER TOTAL -------------- ----------- --------- ----------- $ $ $ Partners' Capital, December 31, 2006 14,327,328.169 161,303,764 1,745,572 163,049,336 Offering of Units 612,283.271 6,526,442 -- 6,526,442 Net loss -- (19,782,415) (208,774) (19,991,189) Redemptions (4,026,743.259) (41,869,483) (387,362) (42,256,845) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2007 10,912,868.181 106,178,308 1,149,436 107,327,744 Offering of Units 442,658.625 4,701,294 -- 4,701,294 Net income -- 12,396,509 134,791 12,531,300 Redemptions (3,432,372.833) (35,742,503) (394,697) (36,137,200) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2008 7,923,153.973 87,533,608 889,530 88,423,138 Net loss -- (7,613,304) (77,520) (7,690,824) Redemptions (1,898,742.771) (20,122,091) (199,822) (20,321,913) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2009 6,024,411.202 59,798,213 612,188 60,410,401 ============== =========== ========= ===========
MORGAN STANLEY SMITH BARNEY SPECTRUM GLOBAL BALANCED L.P. (FORMERLY, MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
UNITS OF PARTNERSHIP LIMITED GENERAL INTEREST PARTNERS PARTNER TOTAL ------------- ---------- -------- ---------- $ $ $ Partners' Capital, December 31, 2006 2,586,996.544 39,917,674 439,646 40,357,320 Offering of Units 186,872.225 2,900,452 -- 2,900,452 Net income (loss) -- 43,079 (422) 42,657 Redemptions (540,092.769) (8,323,434) (65,485) (8,388,919) ------------- ---------- -------- ---------- Partners' Capital, December 31, 2007 2,233,776.000 34,537,771 373,739 34,911,510 Offering of Units 130,955.133 2,053,979 -- 2,053,979 Net income -- 3,300,034 38,314 3,338,348 Redemptions (629,179.627) (9,819,883) (106,479) (9,926,362) ------------- ---------- -------- ---------- Partners' Capital, December 31, 2008 1,735,551.506 30,071,901 305,574 30,377,475 Net loss -- (3,396,166) (34,470) (3,430,636) Redemptions (435,204.924) (7,067,279) (70,210) (7,137,489) ------------- ---------- -------- ---------- Partners' Capital, December 31, 2009 1,300,346.582 19,608,456 200,894 19,809,350 ============= ========== ======== ==========
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SMITH BARNEY SPECTRUM SELECT L.P. (FORMERLY, MORGAN STANLEY SPECTRUM SELECT L.P.) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
UNITS OF PARTNERSHIP LIMITED GENERAL INTEREST PARTNERS PARTNER TOTAL -------------- ------------ ---------- ------------ $ $ $ Partners' Capital, December 31, 2006 18,702,848.006 537,667,844 5,854,641 543,522,485 Offering of Units 1,690,719.727 49,551,232 -- 49,551,232 Net income -- 37,498,154 421,989 37,920,143 Redemptions (3,649,077.724) (107,220,507) (594,798) (107,815,305) -------------- ------------ ---------- ------------ Partners' Capital, December 31, 2007 16,744,490.009 517,496,723 5,681,832 523,178,555 Offering of Units 2,122,702.631 78,579,397 -- 78,579,397 Net income -- 151,981,698 1,663,169 153,644,867 Redemptions (4,017,154.564) (148,266,898) (1,251,543) (149,518,441) -------------- ------------ ---------- ------------ Partners' Capital, December 31, 2008 14,850,038.076 599,790,920 6,093,458 605,884,378 Net loss -- (40,147,610) (408,231) (40,555,841) Redemptions (2,608,237.601) (99,741,263) (942,227) (100,683,490) -------------- ------------ ---------- ------------ Partners' Capital, December 31, 2009 12,241,800.475 459,902,047 4,743,000 464,645,047 ============== ============ ========== ============
MORGAN STANLEY SMITH BARNEY SPECTRUM STRATEGIC L.P. (FORMERLY, MORGAN STANLEY SPECTRUM STRATEGIC L.P.) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
UNITS OF PARTNERSHIP LIMITED GENERAL INTEREST PARTNERS PARTNER TOTAL -------------- ----------- --------- ----------- $ $ $ Partners' Capital, December 31, 2006 12,217,629.382 207,238,137 2,238,927 209,477,064 Offering of Units 2,157,683.821 37,689,397 120,000 37,809,397 Net income -- 10,454,002 115,475 10,569,477 Redemptions (2,405,875.835) (42,213,946) (113,931) (42,327,877) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2007 11,969,437.368 213,167,590 2,360,471 215,528,061 Offering of Units 2,162,673.125 39,440,651 -- 39,440,651 Net income -- 9,880,297 104,320 9,984,617 Redemptions (2,718,236.809) (49,792,041) (304,344) (50,096,385) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2008 11,413,873.684 212,696,497 2,160,447 214,856,944 Net income -- 1,752,399 20,139 1,772,538 Redemptions (1,989,213.188) (36,028,437) (337,940) (36,366,377) -------------- ----------- --------- ----------- Partners' Capital, December 31, 2009 9,424,660.496 178,420,459 1,842,646 180,263,105 ============== =========== ========= ===========
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P. (FORMERLY, MORGAN STANLEY SPECTRUM TECHNICAL L.P.) STATEMENTS OF CHANGES IN PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007
UNITS OF PARTNERSHIP LIMITED GENERAL INTEREST PARTNERS PARTNER TOTAL -------------- ------------ ---------- ------------ $ $ $ Partners' Capital, December 31, 2006 32,115,800.116 748,658,571 8,162,387 756,820,958 Offering of Units 2,927,214.256 65,566,835 -- 65,566,835 Net loss -- (102,064,643) (1,177,181) (103,241,824) Redemptions (6,418,990.517) (139,540,737) (705,574) (140,246,311) -------------- ------------ ---------- ------------ Partners' Capital, December 31, 2007 28,624,023.855 572,620,026 6,279,632 578,899,658 Offering of Units 2,124,231.354 46,288,957 -- 46,288,957 Net income -- 67,638,716 750,114 68,388,830 Redemptions (7,860,779.728) (170,977,587) (1,790,311) (172,767,898) -------------- ------------ ---------- ------------ Partners' Capital, December 31, 2008 22,887,475.481 515,570,112 5,239,435 520,809,547 Net loss -- (46,005,221) (467,396) (46,472,617) Redemptions (4,333,806.371) (92,565,005) (943,655) (93,508,660) -------------- ------------ ---------- ------------ Partners' Capital, December 31, 2009 18,553,669.110 376,999,886 3,828,384 380,828,270 ============== ============ ========== ============
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P. (FORMERLY, MORGAN STANLEY SPECTRUM CURRENCY L.P.) STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------- 2009 2008 2007 ----------- ----------- ----------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) (7,690,824) 12,531,300 (19,991,189) Noncash item included in net income (loss): Net change in unrealized 39,091 (1,139,401) 6,098,290 (Increase) decrease in operating assets: Restricted cash 20,255 2,344,745 (1,708,523) Net premiums paid for options purchased 44,287 (16,613) (29,116) Interest receivable (MS&Co.) (234) 227,999 332,133 Increase (decrease) in operating liabilities: Accrued brokerage fees (MS&Co.) (117,275) (80,091) (189,243) Accrued management fees (50,989) (34,822) (82,280) Net premiums received for options written (24,780) (193,194) 217,974 ----------- ----------- ----------- Net cash provided by (used for) operating activities (7,780,469) 13,639,923 (15,351,954) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Cash received from offering of Units -- 5,191,586 6,795,366 Cash paid for redemptions of Units (23,969,368) (36,966,030) (41,931,983) ----------- ----------- ----------- Net cash used for financing activities (23,969,368) (31,774,444) (35,136,617) ----------- ----------- ----------- Net decrease in unrestricted cash (31,749,837) (18,134,521) (50,488,571) Unrestricted cash at beginning of period 92,837,025 110,971,546 161,460,117 ----------- ----------- ----------- Unrestricted cash at end of period 61,087,188 92,837,025 110,971,546 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SMITH BARNEY SPECTRUM GLOBAL BALANCED L.P. (FORMERLY, MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.) STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------- 2009 2008 2007 ----------- ---------- ---------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) (3,430,636) 3,338,348 42,657 Noncash item included in net income (loss): Net change in unrealized 1,539,636 (1,960,397) 242,776 (Increase) decrease in operating assets: Restricted cash (738,154) 3,410,699 (208,237) Net premiums paid for options purchased (1,034) 10,871 (10,871) Interest receivable (MS&Co.) (77) 90,694 88,255 Increase (decrease) in operating liabilities: Accrued brokerage fees (MS&Co.) (39,337) (18,624) (21,829) Accrued management fees (12,723) (6,326) 1,509 Accrued incentive fees (158,261) 158,261 -- ----------- ---------- ---------- Net cash provided by (used for) operating activities (2,840,586) 5,023,526 134,260 ----------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Cash received from offering of Units -- 2,102,044 3,077,352 Cash paid for redemptions of Units (8,556,055) (8,773,475) (8,892,895) ----------- ---------- ---------- Net cash used for financing activities (8,556,055) (6,671,431) (5,815,543) ----------- ---------- ---------- Net decrease in unrestricted cash (11,396,641) (1,647,905) (5,681,283) Unrestricted cash at beginning of period 29,138,620 30,786,525 36,467,808 ----------- ---------- ---------- Unrestricted cash at end of period 17,741,979 29,138,620 30,786,525 =========== ========== ==========
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SMITH BARNEY SPECTRUM SELECT L.P. (FORMERLY, MORGAN STANLEY SPECTRUM SELECT L.P.) STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 2009 2008 2007 ------------ ------------ ------------ $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) (40,555,841) 153,644,867 37,920,143 Noncash item included in net income (loss): Net change in unrealized 14,030,463 (16,436,714) 2,352,561 (Increase) decrease in operating assets: Restricted cash (28,064,300) 35,906,084 20,963,191 Interest receivable (MS&Co.) (2,211) 1,058,895 795,211 Net premiums paid for options purchased -- 378,156 (378,156) Increase (decrease) in operating liabilities: Accrued brokerage fees (MS&Co.) (670,294) 457,296 (91,234) Accrued management fees (246,505) 126,582 (147,338) Accrued incentive fees (2,429,055) 2,412,452 16,603 ------------ ------------ ------------ Net cash provided by (used for) operating activities (57,937,743) 177,547,618 61,430,981 ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Cash received from offering of Units -- 81,640,779 51,215,560 Cash paid for redemptions of Units (120,702,067) (132,687,512) (108,773,406) ------------ ------------ ------------ Net cash used for financing activities (120,702,067) (51,046,733) (57,557,846) ------------ ------------ ------------ Net increase (decrease) in unrestricted cash (178,639,810) 126,500,885 3,873,135 Unrestricted cash at beginning of period 601,638,653 475,137,768 471,264,633 ------------ ------------ ------------ Unrestricted cash at end of period 422,998,843 601,638,653 475,137,768 ============ ============ ============
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SMITH BARNEY SPECTRUM STRATEGIC L.P. (FORMERLY, MORGAN STANLEY SPECTRUM STRATEGIC L.P.) STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 2009 2008 2007 ------------ ------------ ----------- $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income 1,772,538 9,984,617 10,569,477 Purchase of investment in BHM I, LLC (17,036,081) (88,387,201) -- Proceeds from sale of investments 35,190,072 25,652,936 -- Noncash item included in net income: Net change in unrealized 1,945,071 (3,575,155) 6,993,476 Realized appreciation on investments in BHM I, LLC (1,148,140) (966,654) -- Unrealized appreciation on investment in BHM I, LLC (36,225,357) (14,840,971) -- (Increase) decrease in operating assets: Restricted cash 629,305 25,476,133 (6,668,409) Net premiums paid for options purchased (2,866,746) (307,374) 338,520 Receivable from investment in BHM I, LLC 12,944,307 (15,894,480) -- Interest receivable (MS&Co.) (1,000) 419,795 249,073 Increase (decrease) in operating liabilities: Net premiums received for options written 4,252,971 (286,802) 123,897 Accrued incentive fees 1,411,766 (102,353) 102,353 Accrued brokerage fees (MS&Co.) (207,309) 35,674 27,335 Accrued management fees (87,287) 88,257 (57,691) ------------ ------------ ----------- Net cash provided by (used for) operating activities 574,110 (62,703,578) 11,678,031 ------------ ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES Cash received from offering of Units -- 42,839,588 37,012,006 Cash paid for redemptions of Units (43,286,371) (44,521,151) (42,547,171) ------------ ------------ ----------- Net cash used for financing activities (43,286,371) (1,681,563) (5,535,165) ------------ ------------ ----------- Net increase (decrease) in unrestricted cash (42,712,261) (64,385,141) 6,142,866 Unrestricted cash at beginning of period 113,863,847 178,248,988 172,106,122 ------------ ------------ ----------- Unrestricted cash at end of period 71,151,586 113,863,847 178,248,988 ============ ============ =========== SUPPLEMENTAL DISCLOSURE OF NON-CASH OPERATING ACTIVITY: Non-Cash investment to BHM I, LLC n/a $ 11,850,500 n/a ============ ============ ===========
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P. (FORMERLY, MORGAN STANLEY SPECTRUM TECHNICAL L.P.) STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------- 2009 2008 2007 ------------ ------------ ------------ $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) (46,472,617) 68,388,830 (103,241,824) Noncash item included in net income (loss): Net change in unrealized 6,062,972 (5,557,697) 20,612,964 (Increase) decrease in operating assets: Restricted cash (24,562,625) 41,164,626 60,586,030 Net premiums paid for options purchased (145,525) 245,350 (143,797) Interest receivable (MS&Co.) (1,516) 1,197,529 1,337,147 Increase (decrease) in operating liabilities: Accrued brokerage fees (MS&Co.) (709,068) (273,709) (754,700) Accrued management fees (402,928) 33,990 (652,140) Net premiums received for options written (102,123) 5,985 77,485 Accrued incentive fees (691,074) 429,791 261,283 ------------ ------------ ------------ Net cash provided by (used for) operating activities (67,024,504) 105,634,695 (21,917,552) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES Cash received from offering of Units -- 49,051,224 69,654,462 Cash paid for redemptions of Units (113,621,488) (159,649,850) (141,490,455) ------------ ------------ ------------ Net cash used for financing activities (113,621,488) (110,598,626) (71,835,993) ------------ ------------ ------------ Net decrease in unrestricted cash (180,645,992) (4,963,931) (93,753,545) Unrestricted cash at beginning of period 517,758,117 522,722,048 616,475,593 ------------ ------------ ------------ Unrestricted cash at end of period 337,112,125 517,758,117 522,722,048 ============ ============ ============
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P. (FORMERLY, MORGAN STANLEY SPECTRUM CURRENCY L.P.) CONDENSED SCHEDULES OF INVESTMENTS DECEMBER 31, 2009 AND 2008
LONG UNREALIZED PERCENTAGE OF SHORT UNREALIZED PERCENTAGE NET UNREALIZED FUTURES AND FORWARD CONTRACTS: LOSS NET ASSETS LOSS OF NET ASSETS GAIN/(LOSS) - ------------------------------ --------------- ------------- ---------------- ------------- -------------- 2009 PARTNERSHIP NET ASSETS: $60,410,401 $ % $ % $ Foreign currency (349,025) (0.58) (191,918) (0.32) (540,943) -------- ----- -------- ----- -------- Grand Total: (349,025) (0.58) (191,918) (0.32) (540,943) ======== ===== ======== ===== Unrealized Currency Gain 0.13 78,317 ===== -------- Total Net Unrealized Loss on Open Contracts (462,626) ======== OPTION CONTRACTS FAIR VALUE % OF NAV - ---------------- --------------- ------------- $ % Options purchased on Futures Contacts -- -- Options purchased on Forward Contracts 121 -- Options written on Futures Contracts -- -- Options written on Forward Contracts -- --
MORGAN STANLEY SMITH BARNEY SPECTRUM CURRENCY L.P. (FORMERLY, MORGAN STANLEY SPECTRUM CURRENCY L.P.) CONDENSED SCHEDULES OF INVESTMENTS DECEMBER 31, 2009 AND 2008 (Continued)
LONG UNREALIZED PERCENTAGE OF SHORT UNREALIZED PERCENTAGE OF NET UNREALIZED FUTURES AND FORWARD CONTRACTS: GAIN NET ASSETS LOSS NET ASSETS GAIN/(LOSS) - ------------------------------ --------------- ------------- ---------------- ------------- -------------- 2008 PARTNERSHIP NET ASSETS: $88,423,138 $ % $ % $ Foreign currency 79,116 0.09 (613,982) (0.69) (534,866) ------ ---- -------- ----- -------- Grand Total: 79,116 0.09 (613,982) (0.69) (534,866) ====== ==== ======== ===== Unrealized Currency Gain 0.15 130,959 ===== -------- Total Net Unrealized Loss on Open Contracts (403,907) ======== OPTION CONTRACTS FAIR VALUE % OF NAV - ---------------- --------------- ------------- $ % Options purchased on Futures Contracts -- -- Options purchased on Forward Contracts 251 -- Options written on Futures Contracts -- -- Options written on Forward Contracts (251) --
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SMITH BARNEY SPECTRUM GLOBAL BALANCED L.P. (FORMERLY, MORGAN STANLEY SPECTRUM GLOBAL BALANCED L.P.) CONDENSED SCHEDULES OF INVESTMENTS DECEMBER 31, 2009 AND 2008
LONG UNREALIZED PERCENTAGE OF SHORT UNREALIZED PERCENTAGE OF NET UNREALIZED FUTURES AND FORWARD CONTRACTS: GAIN NET ASSETS GAIN/(LOSS) NET ASSETS GAIN - ------------------------------ --------------- ------------- ---------------- ------------- -------------- 2009 PARTNERSHIP NET ASSETS: $19,809,350 $ % $ % $ Commodity 186,850 0.94 (53,915) (0.27) 132,935 Equity 82,036 0.41 (961) -- 81,075 Foreign currency 19,583 0.10 26,941 0.14 46,524 Interest rate 90,053 0.45 13,882 0.07 103,935 --------- ---- ------- ----- --------- Grand Total: 378,522 1.90 (14,053) (0.06) 364,469 ========= ==== ======= ===== Unrealized Currency Gain 5.08 1,006,229 ===== --------- Total Net Unrealized Gain on Open Contracts 1,370,698 ========= OPTION CONTRACTS FAIR VALUE % OF NAV - ---------------- --------------- ------------- $ % Options purchased on Futures Contacts -- -- Options purchased on Forward Contracts 87 -- Options written on Futures Contracts -- -- Options written on Forward Contracts -- -- 2008 PARTNERSHIP NET ASSETS: $30,377,475 Commodity 162,741 0.53 711,615 2.34 874,356 Equity 23,152 0.08 (334) -- 22,818 Foreign currency 167,729 0.55 63,032 0.21 230,761 Interest rate 1,089,765 3.59 -- -- 1,089,765 --------- ---- ------- ----- --------- Grand Total: 1,443,387 4.75 774,313 2.55 2,217,700 ========= ==== ======= ===== Unrealized Currency Gain 2.28 691,687 ===== --------- Total Net Unrealized Gain on Open Contracts 2,909,387 =========
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SMITH BARNEY SPECTRUM SELECT L.P. (FORMERLY, MORGAN STANLEY SPECTRUM SELECT L.P.) CONDENSED SCHEDULES OF INVESTMENTS DECEMBER 31, 2009 AND 2008
LONG UNREALIZED PERCENTAGE OF SHORT UNREALIZED PERCENTAGE OF NET UNREALIZED FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) NET ASSETS GAIN/(LOSS) NET ASSETS GAIN/(LOSS) - ------------------------------ --------------- ------------- ---------------- ------------- -------------- 2009 PARTNERSHIP NET ASSETS: $464,645,047 $ % $ % $ Commodity 10,326,975 2.22 (1,557,740) (0.33) 8,769,235 Equity 3,424,570 0.74 15,569 -- 3,440,139 Foreign currency (1,335,800) (0.29) 434,606 0.09 (901,194) Interest rate 1,261,198 0.27 212,876 0.05 1,474,074 ---------- ----- ---------- ----- ---------- Grand Total: 13,676,943 2.94 (894,689) (0.19) 12,782,254 ========== ===== ========== ===== Unrealized Currency Loss (0.17) (766,953) ===== ---------- Total Net Unrealized Gain on Open Contracts 12,015,301 ========== 2008 PARTNERSHIP NET ASSETS: $605,884,378 Commodity 838,755 0.14 11,613,498 1.92 12,452,253 Equity 145,512 0.02 (39,608) (0.01) 105,904 Foreign currency (318,118) (0.05) 453,250 0.07 135,132 Interest rate 14,885,639 2.46 2,078 -- 14,887,717 ---------- ----- ---------- ----- ---------- Grand Total: 15,551,788 2.57 12,029,218 1.98 27,581,006 ========== ===== ========== ===== Unrealized Currency Loss (0.25) (1,535,242) ===== ---------- Total Net Unrealized Gain on Open Contracts 26,045,764 ==========
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SMITH BARNEY SPECTRUM STRATEGIC L.P. (FORMERLY, MORGAN STANLEY SPECTRUM STRATEGIC L.P.) CONDENSED SCHEDULES OF INVESTMENTS DECEMBER 31, 2009 AND 2008
LONG UNREALIZED PERCENTAGE OF SHORT UNREALIZED PERCENTAGE OF NET UNREALIZED FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) NET ASSETS GAIN/(LOSS) NET ASSETS GAIN/(LOSS) - ------------------------------ --------------- ------------- ---------------- ------------- -------------- 2009 PARTNERSHIP NET ASSETS: $180,263,105 $ % $ % $ Commodity 402,309 0.22 -- -- 402,309 Equity 265,446 0.15 -- -- 265,446 Foreign currency 203,330 0.11 (326,746) (0.18) (123,416) Interest rate (39,122) (0.02) 8,928 0.01 (30,194) ---------- ----- -------- ----- -------- Grand Total: 831,963 0.46 (317,818) (0.17) 514,145 ========== ===== ======== ===== Unrealized Currency Loss (0.42) (750,142) ===== -------- Total Net Unrealized Loss on Open Contracts (235,997) ======== OPTION CONTRACTS FAIR VALUE % OF NAV - ---------------- --------------- ------------- $ % Options purchased on Futures Contracts -- -- Options purchased on Forward Contracts 3,483,054 1.93 Options written on Futures Contracts -- -- Options written on Forward Contracts (3,985,295) (2.21)
MORGAN STANLEY SMITH BARNEY SPECTRUM STRATEGIC L.P. (FORMERLY, MORGAN STANLEY SPECTRUM STRATEGIC L.P.) CONDENSED SCHEDULES OF INVESTMENTS DECEMBER 31, 2009 AND 2008 (Continued)
LONG UNREALIZED PERCENTAGE OF SHORT UNREALIZED PERCENTAGE OF NET UNREALIZED FUTURES AND FORWARD CONTRACTS: GAIN NET ASSETS LOSS NET ASSETS GAIN/(LOSS) - ------------------------------ --------------- ------------- ---------------- ------------- -------------- 2008 PARTNERSHIP NET ASSETS: $214,856,944 $ % $ % $ Commodity 1,854,894 0.86 (124,468) (0.06) 1,730,426 Equity 20,337 0.01 (16,805) (0.01) 3,532 Foreign currency 1,089,344 0.51 (453,017) (0.21) 636,327 Interest rate 426,800 0.20 -- -- 426,800 --------- ----- -------- ----- --------- Grand Total: 3,391,375 1.58 (594,290) (0.28) 2,797,085 ========= ===== ======== ===== Unrealized Currency Loss (0.37) (792,421) ===== --------- Total Net Unrealized Gain on Open Contracts 2,004,664 ========= OPTION CONTRACTS FAIR VALUE % OF NAV - ---------------- --------------- ------------- $ % Options purchased on Futures Contracts -- -- Options purchased on Forward Contracts 790,178 0.37 Options written on Futures Contracts -- -- Options written on Forward Contracts (201,784) (0.09)
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P. (FORMERLY, MORGAN STANLEY SPECTRUM TECHNICAL L.P.) CONDENSED SCHEDULES OF INVESTMENTS DECEMBER 31, 2009 AND 2008
LONG UNREALIZED PERCENTAGE OF SHORT UNREALIZED PERCENTAGE OF NET UNREALIZED FUTURES AND FORWARD CONTRACTS: GAIN/(LOSS) NET ASSETS GAIN/(LOSS) NET ASSETS GAIN/(LOSS) - ------------------------------ --------------- ------------- ---------------- ------------- -------------- 2009 PARTNERSHIP NET ASSETS: $380,828,270 $ % $ % $ Commodity 6,940,685 1.82 177,727 0.04 7,118,412 Equity 5,093,096 1.34 (4,468) -- 5,088,628 Foreign currency (2,142,450) (0.56) 152,960 0.04 (1,989,490) Interest rate (2,917,670) (0.77) (7,311) -- (2,924,981) ---------- ------ ------- ---- ---------- Grand Total: 6,973,661 1.83 318,908 0.08 7,292,569 ========== ====== ======= ==== Unrealized Currency Gain 0.89 3,403,102 ==== ---------- Total Net Unrealized Gain on Open Contracts 10,695,671 ========== OPTION CONTRACTS FAIR VALUE % NAV - ---------------- --------------- ------------- $ % Options purchased on Futures Contracts 2,023 -- Options purchased on Forward Contracts 183,374 0.05 Options written on Futures Contracts (4,633) -- Options written on Forward Contracts (50,586) (0.01)
MORGAN STANLEY SMITH BARNEY SPECTRUM TECHNICAL L.P. (FORMERLY, MORGAN STANLEY SPECTRUM TECHNICAL L.P.) CONDENSED SCHEDULES OF INVESTMENTS DECEMBER 31, 2009 AND 2008 (Continued)
LONG UNREALIZED PERCENTAGE OF SHORT UNREALIZED PERCENTAGE OF NET UNREALIZED FUTURES AND FORWARD CONTRACTS: GAIN NET ASSETS GAIN/(LOSS) NET ASSETS GAIN/(LOSS) - ------------------------------ --------------- ------------- ---------------- ------------- -------------- 2008 PARTNERSHIP NET ASSETS: $520,809,547 $ % $ % $ Commodity 780,334 0.15 501,033 0.10 1,281,367 Equity 16,503 -- (328,487) (0.06) (311,984) Foreign currency 2,287,038 0.44 (2,652,344) (0.51) (365,306) Interest rate 11,905,805 2.28 (96,679) (0.02) 11,809,126 ---------- ----- ---------- ----- ---------- Grand Total: 14,989,680 2.87 (2,576,477) (0.49) 12,413,203 ========== ===== ========== ===== Unrealized Currency Gain 0.84 4,352,200 ===== ---------- Total Net Unrealized Gain on Open Contracts 16,765,403 ========== OPTION CONTRACTS FAIR VALUE % OF NAV - ---------------- --------------- ------------- $ % Options purchased on Futures Contracts -- -- Options purchased on Forward Contracts 26,406 0.01 Options written on Futures Contracts -- -- Options written on Forward Contracts (150,636) (0.03)
The accompanying notes are an integral part of these financial statements. MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. ORGANIZATION Morgan Stanley Smith Barney Spectrum Currency L.P. ("Spectrum Currency"), Morgan Stanley Smith Barney Spectrum Global Balanced L.P. ("Spectrum Global Balanced"), Morgan Stanley Smith Barney Spectrum Select L.P. ("Spectrum Select"), Morgan Stanley Smith Barney Spectrum Strategic L.P. ("Spectrum Strategic"), and Morgan Stanley Smith Barney Spectrum Technical L.P. ("Spectrum Technical") (individually, a "Partnership", or collectively, the "Partnerships"), are limited partnerships organized to engage primarily in the speculative trading of futures contracts, options on futures and forward contracts, and forward contracts on physical commodities and other commodity interests, including, but not limited to, foreign currencies, financial instruments, metals, energy, and agricultural products (collectively, "Futures Interests") (refer to Note 7. Financial Instruments). The general partner of each Partnership is Demeter Management LLC ("Demeter"). The commodity brokers for Spectrum Global Balanced, Spectrum Select, Spectrum Strategic, and Spectrum Technical are Morgan Stanley & Co. Incorporated ("MS&Co.") and Morgan Stanley & Co. International plc ("MSIP"). Spectrum Currency's commodity broker is MS&Co. MS&Co. acts as the counterparty on all trading of foreign currency forward contracts. Morgan Stanley Capital Group Inc. ("MSCG") acts as the counterparty on all trading of options on foreign currency forward contracts. MS&Co., MSIP, and MSCG are wholly-owned subsidiaries of Morgan Stanley. On April 30, 2009, Demeter Management Corporation was converted from a Delaware corporation to a Delaware limited liability company and changed its name to Demeter Management LLC. Demeter is a wholly-owned subsidiary of Morgan Stanley Smith Barney Holdings LLC, which is majority-owned indirectly by Morgan Stanley and minority-owned indirectly by Citigroup Inc. ("Citigroup"). Demeter does not believe that the change in its ownership had a material impact on each Partnership's limited partners. At all times Demeter served as the general partner of the Partnerships and it continues to do so. The change in ownership occurred pursuant to the transaction in which Morgan Stanley and Citigroup agreed to combine the Global Wealth Management Group of Morgan Stanley and the Smith Barney division of Citigroup Global Markets Inc. into a new joint venture. The transaction closed on June 1, 2009. Prior to June 1, 2009, Demeter was a wholly-owned subsidiary of Morgan Stanley. MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) Effective September 29, 2009, Demeter changed the name of Morgan Stanley Spectrum Currency L.P., Morgan Stanley Spectrum Global Balanced L.P., Morgan Stanley Spectrum Select L.P., Morgan Stanley Spectrum Strategic L.P., and Morgan Stanley Spectrum Technical L.P., respectively, to Morgan Stanley Smith Barney Spectrum Currency L.P., Morgan Stanley Smith Barney Spectrum Global Balanced L.P., Morgan Stanley Smith Barney Spectrum Select L.P., Morgan Stanley Smith Barney Spectrum Strategic L.P., and Morgan Stanley Smith Barney Spectrum Technical L.P., respectively. The name change does not have any impact on the operation of each Partnership or its limited partners. On January 1, 2008, the portion of Spectrum Strategic's assets which are managed by Blenheim Capital Management, L.L.C. ("Blenheim") were initially invested as capital in Morgan Stanley Smith Barney BHM I, LLC ("BHM I, LLC"). BHM I, LLC was formed in order to permit commodity pools operated by Demeter and managed by Blenheim to invest together in one trading vehicle and to promote efficiency and economy in the trading process. Demeter is the trading manager of BHM I, LLC. Spectrum Strategic's allocation to Blenheim is effected by investing substantially all of the capital that is allocated to Blenheim in BHM I, LLC. There is no material change to the investors as a result of the investment in BHM I, LLC. Effective February 29, 2008, Demeter terminated the management agreement by and among Demeter, Spectrum Global Balanced, and Cornerstone Quantitative Investment Group, Inc. ("Cornerstone"). Consequently, Cornerstone ceased all Futures Interests trading on behalf of Spectrum Global Balanced as of February 29, 2008. Effective February 29, 2008, Demeter terminated the management agreement by and among Demeter, Spectrum Strategic, and Cornerstone. Consequently, Cornerstone ceased all Futures Interests trading on behalf of Spectrum Strategic as of February 29, 2008. Effective December 1, 2008, the Partnerships no long offer units of limited partnership interest ("Unit(s)") for purchase or exchange. On April 1, 2007, Morgan Stanley merged Morgan Stanley DW Inc. ("Morgan Stanley DW") into MS&Co. Upon completion of the merger, the surviving entity, MS&Co., became the Partnerships' principal U.S. commodity broker-dealer. On April 13, 2007, Morgan Stanley & Co. International Limited changed its name to Morgan Stanley & Co. International plc. Demeter is required to maintain a 1% minimum interest in the equity of each Partnership and income (losses) are shared by Demeter and the limited partners based upon their proportional ownership interests. MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) - -------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES. The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (U.S. "GAAP"), which require management to make estimates and assumptions that affect the reported amounts in the financial statements and related disclosures. Management believes that the estimates utilized in the preparation of the financial statements are prudent and reasonable. Actual results could differ from those estimates. VALUATION. Futures Interests are open commitments until settlement date, at which time they are realized. They are valued at fair value, generally on a daily basis, and the unrealized gains and losses on open contracts (the difference between contract trade price and market price) are reported in the Statements of Financial Condition as a net unrealized gain or loss on open contracts. The resulting net change in unrealized gains and losses is reflected in the change in unrealized trading profit (loss) on open contracts from one period to the next on the Statements of Operations. The fair value of exchange-traded futures, options and forwards contracts is determined by the various futures exchanges, and reflects the settlement price for each contract as of the close of business on the last business day of the reporting period. The fair value of foreign currency forward contracts is extrapolated on a forward basis from the spot prices quoted as of approximately 3:00 P.M. (E.T.) of the last business day of the reporting period from various exchanges. The fair value of non-exchange-traded foreign currency option contracts is calculated by applying an industry standard model application for options valuation of foreign currency options, using as input, the spot prices, interest rates, and option implied volatilities quoted as of approximately 3:00 P.M. (E.T.) on the last business day of the reporting period. The Partnerships may buy or write put and call options through listed exchanges and the over-the-counter market. The buyer of an option has the right to purchase (in the case of a call option) or sell (in the case of a put option) a specified quantity of a specific Futures Interest on the underlying asset at a specified price prior to or on a specified expiration date. The writer of an option is exposed to the risk of loss if the fair value of a Futures Interest on the underlying asset declines (in the case of a put option) or increases (in the case of a call option). The writer of an option can never profit by more than the premium paid by the buyer but can potentially lose an unlimited amount. Premiums received/premiums paid from writing/purchasing options are recorded as liabilities/assets on the Statements of Financial Condition and are subsequently adjusted to fair values. The difference between the fair value of an option and the premiums received/premiums paid is treated as an unrealized gain or loss. MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) REVENUE RECOGNITION. Monthly, MS&Co. pays each Partnership interest income at a rate equal to the monthly average of the 4-week U.S. Treasury bill discount rate during such month on 80% of the funds on deposit with the commodity brokers at each month-end in the case of Spectrum Currency, Spectrum Select, Spectrum Strategic, and Spectrum Technical, and on 100% of the funds on deposit in the case of Spectrum Global Balanced. For purposes of such interest payments, net assets do not include monies owed to the Partnerships on Futures Interests. FAIR VALUE OF FINANCIAL INSTRUMENTS. The fair value of the Partnerships' assets and liabilities that qualify as financial instruments under Accounting Standards Codification ("ASC") 825-10-50-10, Financial Instruments (formerly, Statement of Financial Accounting Standards ("SFAS") No. 107, Disclosures About Fair Values of Financial Instruments), approximates the carrying amount presented in the Statements of Financial Condition. FOREIGN CURRENCY TRANSLATION. The Partnerships' functional currency is the U.S. dollar; however, the Partnerships may transact business in currencies other than the U.S. dollar. Assets and liabilities denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect at the date of the Statements of Financial Condition. Income and expense items denominated in currencies other than the U.S. dollar are translated into U.S. dollars at the rates in effect during the period. Gains and losses resulting from the translation to U.S. dollars are reported in income currently. NET INCOME (LOSS) PER UNIT. Net income (loss) per Unit is computed in accordance with the specialized accounting for Investment Companies as illustrated in the Financial Highlights Footnote (See Note 10. Financial Highlights). TRADING EQUITY. The Partnerships' asset "Trading Equity," reflected on the Statements of Financial Condition, consists of (A) cash on deposit with MS&Co. and MSIP for Spectrum Global Balanced, Spectrum Select, Spectrum Strategic, and Spectrum Technical, and with MS&Co. for Spectrum Currency, to be used as margin for trading; (B) net unrealized gains or losses on futures and forward contracts, which are valued at fair value and calculated as the difference between original contract value and fair value; and for Partnerships which trade in options, (C) options purchased at fair value. Options written at fair value are recorded in "Liabilities". The Partnerships, in their normal course of business, enter into various contracts with MS&Co. and MSIP acting as their commodity brokers. Pursuant to brokerage agreements with MS&Co. and MSIP, to the extent that such trading results in unrealized gains or losses, these amounts are offset and reported on a net basis on the Partnerships' Statements of Financial Condition. MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) The Partnerships have offset the fair value amounts recognized for forward contracts executed with the same counterparty as allowable under the terms of their master netting agreement with MS&Co., as the counterparty on such contracts. The Partnerships have consistently applied their right to offset. RESTRICTED AND UNRESTRICTED CASH. As reflected on the Partnerships' Statements of Financial Condition, restricted cash equals the cash portion of assets on deposit to meet margin requirements plus the cash required to offset unrealized losses on foreign currency forwards and options and offset losses on offset London Metal Exchange positions. All of these amounts are maintained separately. Cash that is not classified as restricted cash is therefore classified as unrestricted cash. BROKERAGE AND RELATED TRANSACTION FEES AND COSTS. The brokerage fees for Spectrum Currency and Spectrum Global Balanced are currently accrued at a flat monthly rate of 1/12 of 4.6% (a 4.6% annual rate) of net assets as of the first day of each month. Brokerage fees for Spectrum Select, Spectrum Strategic, and Spectrum Technical are currently accrued at a flat monthly rate of 1/12 of 6.0% (a 6.0% annual rate) of net assets as of the first day of each month. Such brokerage fees currently cover all brokerage fees, transaction fees and costs, and ordinary administrative and continuing offering expenses. OPERATING EXPENSES. The Partnerships incur monthly management fees and may incur incentive fees. All common administrative and continuing offering expenses including legal, auditing, accounting, filing fees, and other related expenses are borne by MS&Co. through the brokerage fees paid by the Partnerships. CONTINUING OFFERING. Units of each Partnership were offered at a price equal to 100% of the Net Asset Value per Unit as of the close of business on the last day of each month. No selling commissions or charges related to the continuing offering of Units were paid by the limited partners or the Partnerships. MS&Co. paid all such costs. Effective December 1, 2008, the Partnerships no longer offer Units for purchase or exchange. REDEMPTIONS. Limited partners may redeem some or all of their Units at 100% of the Net Asset Value per Unit as of the end of the last day of any month that is at least six months after the closing at which a person first became a limited partner. The Request for Redemption must be delivered to a limited partner's local Morgan Stanley Smith Barney Branch Office in time for it to be forwarded and received by Demeter no later than 3:00 p.m., New York City time, on the last day of the month in which the redemption is to be effective. Redemptions must be made in whole Units, in a minimum amount of 50 Units required for each redemption, unless a limited partner is redeeming his entire interest in a Partnership. MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) Units redeemed on or prior to the last day of the twelfth month from the date of purchase will be subject to a redemption charge equal to 2% of the Net Asset Value of a Unit on the Redemption Date. Units redeemed after the last day of the twelfth month and on or prior to the last day of the twenty-fourth month from the date of purchase will be subject to a redemption charge equal to 1% of the Net Asset Value of a Unit on the Redemption Date. Units redeemed after the last day of the twenty-fourth month from the date of purchase will not be subject to a redemption charge. The foregoing redemption charges are paid to MS&Co. The aggregate amounts of redemption charges paid to MS&Co. for the years ended December 31 2009, 2008, and 2007 were as follows:
2009 2008 2007 ------ ------ ------ $ $ $ Spectrum Currency 14,053 19,670 41,198 Spectrum Global Balanced 6,792 10,005 12,526 Spectrum Select 154,095 231,902 181,457 Spectrum Strategic 69,135 116,803 132,432 Spectrum Technical 123,590 286,696 257,958
EXCHANGES. On the last day of the first month which occurred more than six months after a person first became a limited partner in any of the Partnerships, and at the end of each month thereafter, limited partners were able to exchange their Units among the Partnerships (subject to certain restrictions outlined in the Limited Partnership Agreements) without paying additional charges. Effective December 1, 2008, the Partnerships no longer offer Units for purchase or exchange. DISTRIBUTIONS. Distributions, other than redemptions of Units, are made on a pro-rata basis at the sole discretion of Demeter. No distributions have been made to date. Demeter does not intend to make any distributions of the Partnerships' profits. INCOME TAXES. No provision for income taxes has been made in the accompanying financial statements, as partners are individually responsible for reporting income or loss based upon their respective share of each Partnership's revenues and expenses for income tax purposes. The Partnerships file U.S. federal and state tax returns. MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) ASC 740-10-50-15, Income Taxes (which incorporates former Financial Accounting Standards Board ("FASB") Statement No. 109 and FASB Interpretation No. 48, Income Taxes), clarifies the accounting for uncertainty in income taxes recognized in a Partnership's financial statements, and prescribes a recognition threshold and measurement attribute for financial statement recognition and measurement of a tax position taken or expected to be taken. The Partnerships have concluded there are no significant uncertain tax positions that would require recognition in the financial statements as of December 31, 2009. If applicable, the Partnerships recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in other expenses in the Statements of Operations. Generally, 2006 through 2009 tax years remain subject to examination by U.S. federal and most state tax authorities. DISSOLUTION OF THE PARTNERSHIPS. Spectrum Currency, Spectrum Global Balanced, Spectrum Strategic, and Spectrum Technical will terminate on December 31, 2035, and Spectrum Select will terminate on December 31, 2025, regardless of financial condition at such time, or at an earlier date if certain conditions occur as defined in each Partnership's Limited Partnership Agreement. OTHER PRONOUNCEMENTS. On July 1, 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles, also known as FASB ASC 105-10, Generally Accepted Accounting Principles ("ASC 105-10" or the "Codification"). ASC 105-10 established the exclusive authoritative reference for U.S. GAAP for use in financial statements except for Securities and Exchange Commission ("SEC") rules and interpretive releases, which are also authoritative GAAP for SEC registrants. The Codification supersedes all existing non-SEC accounting and reporting standards. The Codification became the single source of authoritative accounting principles generally accepted in the United States and is effective for financial statements issued for interim and annual periods ending after September 15, 2009. In September 2009, the FASB issued Accounting Standards Update ("ASU") No. 2009-12 addressing Fair Value Measurement and Disclosures, Topic ASC 820. ASU No. 2009-12 amended Subtopic 820-10, Fair Value Measurement and Disclosures-Overall, for the fair value measurement of investments in certain entities that calculate net asset value per share or its equivalent. The amendments in ASU No. 2009-12 permit, as a practical expedient, a reporting entity to measure the fair value of an investment that is within the scope of the amendments in ASU No. 2009-12 on the basis of the net asset value per share of the investment or its equivalent. Additionally, ASU No. 2009-12 requires disclosures by major category of investment about the attributes of the investments within the scope of the amendments, such as the nature of any restrictions on redemptions, any unfunded commitments and the investment strategies of the investees. The amendments in ASU No. 2009-12 are effective for interim and annual periods ending after December 15, 2009. Management believes that the adoption of ASU No. 2009-12 did not have a material impact on the financial statements of the Partnerships. MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) The Partnerships adopted ASC 855-10, Subsequent Events (formerly, SFAS No. 165, Subsequent Events), which was issued in May 2009, and ASU No. 2010-09, Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements, which was issued in February 2010. ASC 855-10 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. ASC 855-10 is effective for the interim and annual periods ending after June 15, 2009 and ASU No. 2010-09 is effective immediately. Management has performed its evaluation of subsequent events and has determined that there were no subsequent events requiring adjustment in the December 31, 2009 financial statements. The nature of the subsequent events is disclosed in Note 11. Subsequent Events. ASC 820-10-65, Fair Value Measurements (formerly, FASB Staff Position ("FSP") SFAS No. 157-4, Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly), was issued in April 2009. ASC 820-10-65 provides additional guidance for determining fair value and requires new disclosures regarding the categories of fair value instruments, as well as the inputs and valuation techniques utilized to determine fair value and any changes to the inputs and valuation techniques during the period. ASC 820-10-65 is effective for the interim and annual periods ending after June 15, 2009. The adoption of ASC 820-10-65 did not have a material impact on the Partnerships' financial statements. - -------------------------------------------------------------------------------- 3. RECENT ACCOUNTING PRONOUNCEMENTS In January 2010, the FASB issued ASU No. 2010-06, Improving Disclosures about Fair Value Measurements, which, among other things, amends ASC 820 to require entities to separately present purchases, sales, issuances, and settlements in their reconciliation of Level 3 fair value measurements (i.e., to present such items on a gross basis rather than on a net basis), and which clarifies existing disclosure requirements provided by ASC 820 regarding the level of disaggregation and the inputs and valuation techniques used to measure fair value for measurements that fall within either Level 2 or Level 3 of the fair value hierarchy. ASU No. 2010-06 is effective for interim and annual periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The Partnerships are currently assessing the impact of adopting ASU No. 2010-06. MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) In June 2009, the FASB issued ASC 810-10, Consolidation of Variable Interest Entities (formerly, SFAS 167, Amendments to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities). ASC 810-10 contains new criteria for determining the primary beneficiary, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a variable interest entity. ASC 810-10 also contains a new requirement that any term, transaction, or arrangement that does not have a substantive effect on an entity's status as a variable interest entity, a company's power over a variable interest entity, or a company's obligation to absorb losses or its right to receive benefits of an entity must be disregarded in applying Interpretation 46(R)'s provisions. ASC 810-10 is applicable for annual periods beginning after November 15, 2009, and interim periods thereafter. Effective February 25, 2010, the FASB has decided to indefinitely defer the application of ASC 810-10 for certain entities. Management believes that the Partnerships meet the criteria for the indefinite deferral of the application of ASC 810-10. - -------------------------------------------------------------------------------- 4. INVESTMENT IN BHM I, LLC Effective January 1, 2008, Spectrum Strategic invested a portion of its assets in BHM I, LLC. Spectrum Strategic's investment in BHM I, LLC represents approximately 60.81% of the net asset value of Spectrum Strategic at December 31, 2009. Summarized information for Spectrum Strategic's investment in BHM I, LLC as of December 31, 2009, is as follows:
% OF PARTNERSHIP FAIR TOTAL MANAGEMENT INCENTIVE ADMINISTRATIVE INVESTMENT NET ASSETS VALUE INCOME FEES FEES FEES - ---------- ----------- ----------- ---------- ---------- --------- -------------- % $ $ $ $ $ BHM I, LLC 60.81 109,611,896 37,373,497 n/a n/a n/a
Spectrum Strategic's investment into BHM I, LLC does not pay any management, incentive, or administrative fee. Those fees are paid by Spectrum Strategic. For BHM I, LLC, contributions and withdrawals are permitted on a monthly basis. MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) The tables below represent summarized Income Statement information for BHM I, LLC for the year ended December 31, 2009 and 2008, respectively, to meet the requirements of Regulation S-X rule 3-09, as follows:
NET TOTAL DECEMBER 31, INVESTMENT INVESTMENT TRADING NET 2009 INCOME LOSS RESULTS INCOME ------------ ---------- ---------- ---------- ---------- $ $ $ $ BHM I, LLC 22,591 (2,554,661) 49,563,805 47,009,144
NET TOTAL DECEMBER 31, INVESTMENT INVESTMENT TRADING NET 2008 INCOME LOSS RESULTS INCOME ------------ ---------- ---------- ---------- ---------- $ $ $ $ BHM I, LLC 241,409 (890,361) 16,786,894 15,896,533
- -------------------------------------------------------------------------------- 5. RELATED PARTY TRANSACTIONS Spectrum Global Balanced, Spectrum Select, Spectrum Strategic, and Spectrum Technical's cash is on deposit with Morgan Stanley DW (through March 31, 2007), MS&Co., and MSIP, and Spectrum Currency's cash is on deposit with Morgan Stanley DW (through March 31, 2007) and MS&Co., in futures interests trading accounts to meet margin requirements as needed. MS&Co. (Morgan Stanley DW through March 31, 2007) pays interest on these funds as described in Note 2. Each Partnership pays brokerage fees to MS&Co. (Morgan Stanley DW through March 31, 2007) as described in Note 2. MSCG acts as the counterparty on all trading of options on foreign currency forward contracts. - -------------------------------------------------------------------------------- 6. TRADING ADVISORS Demeter, on behalf of each Partnership, retains certain commodity trading advisors to make all trading decisions for the Partnerships. The trading advisors for each Partnership at December 31, 2009 were as follows: Morgan Stanley Smith Barney Spectrum Currency L.P. C-View International Limited ("C-View") DKR Fusion Management L.P. ("DKR") FX Concepts Trading Advisor, Inc. ("FX Concepts") John W. Henry & Company, Inc. ("JWH") Sunrise Capital Partners, LLC ("Sunrise") Morgan Stanley Smith Barney Spectrum Global Balanced L.P. Altis Partners (Jersey) Limited ("Altis") C-View International Limited SSARIS Advisors, LLC ("SSARIS") MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) Morgan Stanley Smith Barney Spectrum Select L.P. Altis Partners (Jersey) Limited EMC Capital Management, Inc. ("EMC") Graham Capital Management, L.P. ("Graham") Northfield Trading L.P. ("Northfield") Rabar Market Research, Inc. ("Rabar") Sunrise Capital Management, Inc. Morgan Stanley Smith Barney Spectrum Strategic L.P. Blenheim Capital Management, L.L.C. ("Blenheim") Eclipse Capital Management, Inc. ("Eclipse") FX Concepts Trading Advisor, Inc. Morgan Stanley Smith Barney Spectrum Technical L.P. Aspect Capital Limited ("Aspect") Campbell & Company, Inc. ("Campbell") Chesapeake Capital Corporation ("Chesapeake") John W. Henry & Company, Inc. Rotella Capital Management, Inc. ("Rotella") Winton Capital Management Limited ("Winton") Compensation to the trading advisors by the Partnerships consists of a management fee and an incentive fee as follows: MANAGEMENT FEE. The management fee for Spectrum Currency is accrued at a rate of 1/6 of 1% per month of net assets allocated to each trading advisor on the first day of each month (a 2% annual rate). The management fee for Spectrum Global Balanced is accrued at a rate of 5/48 of 1% per month of net assets allocated to SSARIS on the first day of each month (a 1.25% annual rate), 1/12 of 1.25% per month of net assets allocated to Altis on the first day of each month (a 1.25% annual rate), and 1/6 of 1% per month of net assets allocated to C-View on the first day of each month (a 2% annual rate). Prior to August 1, 2008, Spectrum Global Balanced accrued management fees at a rate of 1/12 of 1.75% per month of net assets allocated to Altis on the first day of each month (a 1.75% annual rate). The management fee for Spectrum Select is accrued at a rate of 1/12 of 1.25% per month of net assets allocated to Altis on the first day of each month (a 1.25% annual rate), 1/6 of 1% per month of net assets allocated to Graham on the first day of each month (a 2% annual rate), 5/24 of 1% per month of net assets allocated to EMC and Rabar on the first day of each month (a 2.5% annual rate), and 1/4 of 1% per month of net assets allocated to Northfield and Sunrise on the first day of each month (a 3% annual rate). Prior to August 1, 2008, Spectrum Select accrued management fees at a rate of 1/12 of 1.75% per month of net assets allocated to Altis on the first day of each month (a 1.75% annual rate). MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) The management fee for Spectrum Strategic is accrued at a rate of 1/6 of 1% per month of net assets allocated to FX Concepts on the first day of each month (a 2% annual rate), and 1/4 of 1% per month of net assets allocated to Blenheim and Eclipse on the first day of each month (a 3% annual rate). The management fee for Spectrum Technical is accrued at a rate of 1/6 of 1% per month of net assets allocated to Aspect, Chesapeake, JWH, and Winton on the first day of each month (a 2% annual rate), and 1/4 of 1% per month of net assets allocated to Campbell on the first day of each month (a 3% annual rate). For the period from October 1, 2009, through December 31, 2009, Rotella temporarily waived the management fee it receives from Spectrum Technical. Effective January 1, 2010, Spectrum Technical pays Rotella a monthly management fee equal to 1/6 of 1% of its net assets allocated to Rotella on the first day of each month (a 2% annual rate). Prior to October 1, 2009, Spectrum Technical paid Rotella a monthly management fee equal to 1/6 of 1% of its net assets allocated to Rotella on the first day of each month (a 2% annual rate). For the period from September 1, 2007, through December 31, 2007, Chesapeake waived the management fee it receives from Spectrum Technical. Effective January 1, 2008, Spectrum Technical pays Chesapeake a monthly management fee equal to 1/6 of 1% of its net assets allocated to Chesapeake on the first day of each month (a 2% annual rate). Prior to September 1, 2007, Spectrum Technical paid Chesapeake a monthly management fee equal to 1/4 of 1% of its net assets allocated to Chesapeake on the first day of each month (a 3% annual rate). INCENTIVE FEE. Spectrum Currency pays a monthly incentive fee equal to 20% of the trading profits experienced with respect to each trading advisor's allocated net assets as of the end of each calendar month. Spectrum Global Balanced pays a monthly incentive fee equal to 15% of the trading profits experienced with respect to the net assets allocated to SSARIS as of the end of each calendar month, and 20% of the trading profits experienced with respect to the net assets allocated to Altis and C-View as of the end of each calendar month. Spectrum Select pays a monthly incentive fee equal to 15% of the trading profits experienced with respect to the net assets allocated to Northfield and Sunrise as of the end of each calendar month, 17.5% of the trading profits experienced with respect to the net assets allocated to EMC and Rabar as of the end of each calendar month, and 20% of the trading profits experienced with respect to the net assets allocated to Altis and Graham as of the end of each calendar month. Spectrum Strategic pays a monthly incentive fee equal to 15% of the trading profits experienced with respect to the net assets allocated to Blenheim and Eclipse as of the end of each calendar month, and 20% of the trading profits experienced with respect to the net assets allocated to FX Concepts as of the end of each calendar month. MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) Spectrum Technical pays a monthly incentive fee equal to 19% of the trading profits experienced with respect to the net assets allocated to Chesapeake as of the end of each calendar month, and 20% of the trading profits experienced with respect to the net assets allocated to each of Aspect, Campbell, JWH, Rotella, and Winton as of the end of each calendar month. Trading profits represent the amount by which profits from futures, forwards, and options trading exceed losses after brokerage and management fees are deducted. For all trading advisors with trading losses, no incentive fee is paid in subsequent months until all such losses are recovered. Cumulative trading losses are adjusted on a pro-rata basis for the net amount of each month's redemptions. - -------------------------------------------------------------------------------- 7. FINANCIAL INSTRUMENTS The Partnerships trade Futures Interests. Futures and forwards represent contracts for delayed delivery of an instrument at a specified date and price. Risk arises from changes in the value of these contracts and the potential inability of counterparties to perform under the terms of the contracts. There are numerous factors which may significantly influence the fair value of these contracts, including interest rate volatility. The fair value of exchange-traded contracts is based on the settlement price quoted by the exchange on the day with respect to which fair value is being determined. If an exchange-traded contract could not have been liquidated on such day due to the operation of daily limits or other rules of the exchange, the settlement price shall be the settlement price on the first subsequent day on which the contract could be liquidated. The fair value of off-exchange-traded contracts is based on the fair value quoted by the counterparty. The Partnerships' contracts are accounted for on a trade-date basis and marked to market on a daily basis. Each Partnership accounts for its derivative investments as required by ASC 815-10-15, Derivatives and Hedging (formerly, SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities). A derivative is defined as a financial instrument or other contract that has all three of the following characteristics: (1)One or more underlying notional amounts or payment provisions; (2)Requires no initial net investment or a smaller initial net investment than would be required relative to changes in market factors; (3)Terms require or permit net settlement. Generally, derivatives include futures, forward, swap or options contracts, and other financial instruments with similar characteristics such as caps, floors, and collars. MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) The net unrealized gains (losses) on open contracts at December 31, reported as a component of "Trading Equity" on the Statements of Financial Condition, and their longest contract maturities were as follows: SPECTRUM CURRENCY
NET UNREALIZED LOSSES ON OPEN CONTRACTS LONGEST MATURITIES ---------------------------- ------------------- OFF- OFF- EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE- YEAR TRADED TRADED TOTAL TRADED TRADED ---- --------- --------- -------- --------- --------- $ $ $ 2009 -- (462,626) (462,626) -- Mar. 2010 2008 -- (403,907) (403,907) -- Apr. 2009
SPECTRUM GLOBAL BALANCED
NET UNREALIZED GAINS ON OPEN CONTRACTS LONGEST MATURITIES ----------------------------- ------------------- OFF- OFF- EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE- YEAR TRADED TRADED TOTAL TRADED TRADED ---- --------- --------- --------- --------- --------- $ $ $ 2009 1,313,616 57,082 1,370,698 Dec. 2011 Mar. 2010 2008 2,853,299 56,088 2,909,387 Jun. 2010 Apr. 2009
SPECTRUM SELECT
NET UNREALIZED GAINS/(LOSSES) ON OPEN CONTRACTS LONGEST MATURITIES --------------------------------- ------------------- OFF- OFF- EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE- YEAR TRADED TRADED TOTAL TRADED TRADED ---- ---------- ---------- ---------- --------- --------- $ $ $ 2009 12,929,342 (914,041) 12,015,301 Dec. 2011 Mar. 2010 2008 27,202,139 (1,156,375) 26,045,764 Jun. 2010 Mar. 2009
SPECTRUM STRATEGIC
NET UNREALIZED GAINS/(LOSSES) ON OPEN CONTRACTS LONGEST MATURITIES ------------------------------ --------------------- OFF- OFF- EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE- YEAR TRADED TRADED TOTAL TRADED TRADED ---- --------- --------- --------- --------- ----------- $ $ $ 2009 (88,269) (147,728) (235,997) Sep. 2010 Jul. 2010 2008 1,271,965 732,699 2,004,664 Jun. 2009 Mar. 2009
SPECTRUM TECHNICAL
NET UNREALIZED GAINS/(LOSSES) ON OPEN CONTRACTS LONGEST MATURITIES ------------------------------- ------------------- OFF- OFF- EXCHANGE- EXCHANGE- EXCHANGE- EXCHANGE- YEAR TRADED TRADED TOTAL TRADED TRADED ---- ---------- --------- ---------- --------- --------- $ $ $ 2009 11,576,454 (880,783) 10,695,671 Mar. 2013 Mar. 2010 2008 16,274,500 490,903 16,765,403 Mar. 2012 Mar. 2009
MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) The Partnerships have credit risk associated with counterparty nonperformance. As of the date of the financial statements, the credit risk associated with the instruments in which the Partnerships trade is limited to the unrealized gain amounts reflected in the Partnerships' Statements of Financial Condition. The Partnerships also have credit risk because MS&Co., MSIP, and/or MSCG act as the futures commission merchants or the counterparties, with respect to most of the Partnerships' assets. Exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts are marked to market on a daily basis, with variations in value settled on a daily basis. MS&Co. and MSIP, each acting as a commodity broker for each Partnership's exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts, are required, pursuant to regulations of the Commodity Futures Trading Commission, to segregate from their own assets, and for the sole benefit of their commodity customers, all funds held by them with respect to exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts, including an amount equal to the net unrealized gains (losses) on all open exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts, which funds, in the aggregate, totaled at December 31, 2009 and 2008, respectively, $20,005,982 and $32,204,152 for Spectrum Global Balanced, $472,748,655 and $637,596,962 for Spectrum Select, $72,609,935 and $117,311,735 for Spectrum Strategic, and $387,447,980 and $548,229,393 for Spectrum Technical. With respect to each Partnership's off-exchange-traded forward currency contracts and forward currency options contracts, there are no daily settlements of variation in value, nor is there any requirement that an amount equal to the net unrealized gains (losses) on such contracts be segregated. However, each Partnership is required to meet margin requirements equal to the net unrealized loss on open forward currency contracts in the Partnership accounts with the counterparty, which is accomplished by daily maintenance of the cash balance in a custody account held at MS&Co. With respect to those off-exchange-traded forward currency contracts, the Partnerships are at risk to the ability of MS&Co., the sole counterparty on all such contracts, to perform. With respect to those off-exchange-traded forward currency options contracts, the Partnerships are at risk to the ability of MSCG, the sole counterparty on all such contracts, to perform. Each Partnership has a netting agreement with each counterparty. These agreements, which seek to reduce both the Partnerships' and the counterparties' exposure on off-exchange-traded forward currency contracts, including options on such contracts, should materially decrease the Partnerships' credit risk in the event of MS&Co.'s or MSCG's bankruptcy or insolvency. MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) The futures, forwards and options on such contracts traded by the Partnerships involve varying degrees of related market risk. Market risk is often dependent upon changes in the level or volatility of interest rates, exchange rates, and prices of financial instruments and commodities, factors that result in frequent changes in the fair value of the Partnerships' open positions, and consequently in its earnings, whether realized or unrealized, and cash flow. Gains and losses on open positions of exchange-traded futures, exchange-traded forward, and exchange-traded futures-styled options contracts are settled daily through variation margin. Gains and losses on off-exchange-traded forward currency contracts are settled upon termination of the contract. Gains and losses on off-exchange-traded forward currency options contracts are settled upon an agreed upon settlement date. However, the Partnerships are required to meet margin requirements equal to the net unrealized loss on open forward currency contracts in the Partnerships' accounts with the counterparty, which is accomplished by daily maintenance of the cash balance in a custody account held at MS&Co. - -------------------------------------------------------------------------------- 8. DERIVATIVES AND HEDGING ASC 815-10-65, Derivatives and Hedging (formerly, SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities--an amendment of SFAS No. 133, which was issued in March 2008), is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand how those instruments and activities are accounted for; how and why they are used; and their effects on a Partnership's financial position, financial performance, and cash flows. The Partnerships adopted ASC 815-10-65 as of January 1, 2009. The adoption of ASC 815-10-65 did not have a material impact on the Partnerships' financial statements, other than enhanced financial statements disclosures. The Partnerships' objective is to profit from speculative trading in Futures Interests. Therefore, the trading advisor for each Partnership will take speculative positions in Futures Interests where it feels the best profit opportunities exist for its trading strategy. As such, the absolute quantity (the total of the open long and open short positions) has been presented as a part of the volume disclosure, as position direction is not an indicative factor in such volume disclosures. In regards to foreign currency forward trades, each notional quantity amount has been converted to an equivalent contract based upon an industry convention. MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) The following tables summarize the valuation of each Partnership's investments as required by ASC 815-10-65 as of December 31, 2009 and reflects the contracts outstanding at such time. SPECTRUM CURRENCY The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2009:
AVERAGE NUMBER OF CONTRACTS OUTSTANDING LONG LONG SHORT SHORT NET FOR THE YEAR UNREALIZED UNREALIZED UNREALIZED UNREALIZED UNREALIZED (ABSOLUTE FUTURES AND FORWARD CONTRACTS GAIN LOSS GAIN LOSS GAIN/(LOSS) QUANTITY) - ----------------------------- ---------- ---------- ---------- ---------- ----------- -------------- $ $ $ $ $ Foreign currency 322,002 (671,027) 178,089 (370,007) (540,943) 5,742 ------- -------- ------- -------- -------- Total 322,002 (671,027) 178,089 (370,007) (540,943) ======= ======== ======= ======== Unrealized currency gain 78,317 -------- Total net unrealized loss on open contracts (462,626) ======== OPTION CONTRACTS AT FAIR VALUE - ------------------------------ $ Options purchased 121 Options written --
SPECTRUM GLOBAL BALANCED The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2009:
AVERAGE NUMBER OF CONTRACTS OUTSTANDING LONG LONG SHORT SHORT NET FOR THE YEAR UNREALIZED UNREALIZED UNREALIZED UNREALIZED UNREALIZED (ABSOLUTE FUTURES AND FORWARD CONTRACTS GAIN LOSS GAIN LOSS GAIN QUANTITY) - ----------------------------- ---------- ---------- ---------- ---------- ---------- -------------- $ $ $ $ $ Commodity 290,387 (103,537) 24,773 (78,688) 132,935 278 Equity 83,030 (994) -- (961) 81,075 42 Foreign currency 81,951 (62,368) 75,615 (48,674) 46,524 954 Interest rate 159,043 (68,990) 15,050 (1,168) 103,935 357 ------- -------- ------- -------- --------- Total 614,411 (235,889) 115,438 (129,491) 364,469 ======= ======== ======= ======== Unrealized currency gain 1,006,229 --------- Total net unrealized gain on open contracts 1,370,698 ========= OPTION CONTRACTS AT FAIR VALUE - ------------------------------ $ Options purchased 87 Options written --
MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) SPECTRUM SELECT The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2009:
AVERAGE NUMBER OF CONTRACTS OUTSTANDING LONG LONG SHORT SHORT NET FOR THE YEAR FUTURES AND FORWARD UNREALIZED UNREALIZED UNREALIZED UNREALIZED UNREALIZED (ABSOLUTE CONTRACTS GAIN LOSS GAIN LOSS GAIN/(LOSS) QUANTITY) - --------- ---------- ---------- ---------- ---------- ----------- -------------- $ $ $ $ $ Commodity 13,176,127 (2,849,152) 344,940 (1,902,680) 8,769,235 5,839 Equity 3,532,600 (108,030) 15,569 -- 3,440,139 2,450 Foreign currency 1,015,082 (2,350,882) 650,586 (215,980) (901,194) 11,725 Interest rate 2,444,830 (1,183,632) 346,565 (133,689) 1,474,074 8,812 ---------- ---------- --------- ---------- ---------- Total 20,168,639 (6,491,696) 1,357,660 (2,252,349) 12,782,254 ========== ========== ========= ========== Unrealized currency loss (766,953) ---------- Total net unrealized gain on open contracts 12,015,301 ==========
SPECTRUM STRATEGIC The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2009:
AVERAGE NUMBER OF CONTRACTS OUTSTANDING LONG LONG SHORT SHORT NET FOR THE YEAR UNREALIZED UNREALIZED UNREALIZED UNREALIZED UNREALIZED (ABSOLUTE FUTURES AND FORWARD CONTRACTS GAIN LOSS GAIN LOSS GAIN/(LOSS) QUANTITY) - ----------------------------- ---------- ---------- ---------- ---------- ----------- -------------- $ $ $ $ $ Commodity 415,967 (13,658) -- -- 402,309 109 Equity 265,446 -- -- -- 265,446 203 Foreign currency 2,436,578 (2,233,248) 1,589,017 (1,915,763) (123,416) 1,677 Interest rate 10,952 (50,074) 8,928 -- (30,194) 1,152 ---------- ---------- --------- ---------- -------- Total 3,128,943 (2,296,980) 1,597,945 (1,915,763) 514,145 ========== ========== ========= ========== Unrealized currency loss (750,142) -------- Total net unrealized loss on open contracts (235,997) ======== OPTION CONTRACTS AT FAIR VALUE - ------------------------------ $ Options purchased 3,483,054 Options written (3,985,295)
MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) SPECTRUM TECHNICAL The Effect of Trading Activities on the Statements of Financial Condition as of December 31, 2009:
AVERAGE NUMBER OF CONTRACTS OUTSTANDING LONG LONG SHORT SHORT NET FOR THE YEAR FUTURES AND FORWARD UNREALIZED UNREALIZED UNREALIZED UNREALIZED UNREALIZED (ABSOLUTE CONTRACTS GAIN LOSS GAIN LOSS GAIN/(LOSS) QUANTITY) - --------- ---------- ---------- ---------- ---------- ----------- -------------- $ $ $ $ $ Commodity 9,706,779 (2,766,094) 405,015 (227,288) 7,118,412 3,562 Equity 5,129,900 (36,804) -- (4,468) 5,088,628 2,358 Foreign currency 526,121 (2,668,571) 1,040,532 (887,572) (1,989,490) 4,887 Interest rate 376,281 (3,293,951) 242,196 (249,507) (2,924,981) 6,744 ---------- ---------- --------- ---------- ---------- Total 15,739,081 (8,765,420) 1,687,743 (1,368,835) 7,292,569 ========== ========== ========= ========== Unrealized currency gain 3,403,102 ---------- Total net unrealized gain on open contracts 10,695,671 ========== OPTION CONTRACTS AT FAIR VALUE - ----- $ Options purchased 185,397 Options written (55,219)
The following tables summarize the net trading results of each Partnership for the year ended December 31, 2009 as required by the disclosures about Derivatives and Hedging Topic of ASC 815-10-65. SPECTRUM CURRENCY The Effect of Trading Activities on the Statements of Operations for the year ended December 31, 2009 included in Total Trading Results:
TYPE OF INSTRUMENT ------------------ $ Foreign currency (2,979,122) Unrealized currency loss (52,641) ---------- Total (3,031,763) ==========
Line Items on the Statements of Operations for the year ended December 31, 2009:
TRADING RESULTS --------------- $ Realized (2,992,672) Net change in unrealized (39,091) ---------- Total Trading Results (3,031,763) ==========
MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) SPECTRUM GLOBAL BALANCED The Effect of Trading Activities on the Statements of Operations for the year ended December 31, 2009 included in Total Trading Results:
TYPE OF INSTRUMENT ------------------ $ Commodity (1,244,194) Equity 303,714 Foreign currency (756,331) Interest rate (608,998) Unrealized currency gain 314,542 ---------- Total (1,991,267) ==========
Line Items on the Statements of Operations for the year ended December 31, 2009:
TRADING RESULTS --------------- $ Realized (451,631) Net change in unrealized (1,539,636) ---------- Total Trading Results (1,991,267) ==========
SPECTRUM SELECT The Effect of Trading Activities on the Statements of Operations for the year ended December 31, 2009 included in Total Trading Results:
TYPE OF INSTRUMENT ------------------ $ Commodity 10,512,655 Equity 23,140,270 Foreign currency (11,446,352) Interest rate (20,962,448) Unrealized currency gain 768,289 ----------- Total 2,012,414 ===========
Line Items on the Statements of Operations for the year ended December 31, 2009:
TRADING RESULTS --------------- $ Realized 16,042,877 Net change in unrealized (14,030,463) ----------- Total Trading Results 2,012,414 ===========
SPECTRUM STRATEGIC The Effect of Trading Activities on the Statements of Operations for the year ended December 31, 2009 included in Total Trading Results:
TYPE OF INSTRUMENT ------------------ $ Commodity 25,868,905 Equity (3,666,716) Foreign currency (9,779,702) Interest rate 7,433,549 Unrealized currency gain 42,279 ---------- Total 19,898,315 ==========
MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) Line Items on the Statements of Operations for the year ended December 31, 2009:
TRADING RESULTS --------------- $ Realized (15,530,111) Net change in unrealized (1,945,071) Realized gain on investment in BHM I, LLC 1,148,140 Unrealized appreciation on investment in BHM I, LLC 36,225,357 ----------- Total Trading Results 19,898,315 ===========
SPECTRUM TECHNICAL The Effect of Trading Activities on the Statements of Operations for the year ended December 31, 2009 included in Total Trading Results:
TYPE OF INSTRUMENT ------------------ $ Commodity 4,000,782 Equity 9,428,097 Foreign currency (7,009,480) Interest rate (17,252,226) Unrealized currency loss (949,098) ----------- Total (11,781,925) ===========
Line Items on the Statements of Operations for the year ended December 31, 2009:
TRADING RESULTS --------------- $ Realized (5,718,953) Net change in unrealized (6,062,972) ----------- Total Trading Results (11,781,925) ===========
- -------------------------------------------------------------------------------- 9. FAIR VALUE MEASUREMENTS AND DISCLOSURES As defined by ASC 820-10-55, Fair Value Measurements and Disclosures (formerly, SFAS No. 157, Fair Value Measurements), fair value is the amount that would be recovered when an asset is sold or an amount paid to transfer a liability, in an ordinary transaction, between market participants at the measurement date (exit price). Market price observability is impacted by a number of factors, including the types of investments, the characteristics specific to the investment, and the state of the market (including the existence and the transparency of transactions between market participants). Investments with readily available actively quoted prices in an ordinary market will generally have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) ASC 820-10-55 requires use of a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels: Level 1--unadjusted quoted market prices in active markets for identical assets and liabilities; Level 2--inputs other than unadjusted quoted market prices that are observable for the asset or liability, either directly or indirectly (including quoted prices for similar investments, interest rates, credit risk); and Level 3--unobservable inputs for the asset or liability (including the Partnerships' own assumptions used in determining the fair value of investments). In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Partnerships' assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the investment. The Partnerships adopted ASC 820-10-55 as of January 1, 2008. The adoption of ASC 820-10-55 did not have a material impact on the Partnerships' financial statements, other than enhanced financial statements disclosures. The following tables summarize the valuation of each Partnership's investments according to the level of the above ASC 820-10-55 fair value hierarchy as of December 31, 2009 and 2008, respectively: SPECTRUM CURRENCY
UNADJUSTED QUOTED PRICES IN ACTIVE SIGNIFICANT MARKETS FOR OTHER SIGNIFICANT IDENTICAL OBSERVABLE UNOBSERVABLE ASSETS INPUTS INPUTS (LEVEL 1) (LEVEL 2) (LEVEL 3) TOTAL ------------- ----------- ------------ -------- $ $ $ $ DECEMBER 31, 2009 ---------------------- ASSETS Net unrealized loss on open contracts -- (462,626) n/a (462,626) Options purchased -- 121 n/a 121 DECEMBER 31, 2008 ---------------------- ASSETS Net unrealized loss on open contracts -- (403,907) n/a (403,907) Options purchased -- 251 n/a 251 LIABILITIES Options written -- 251 n/a 251
MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) SPECTRUM GLOBAL BALANCED
UNADJUSTED QUOTED PRICES IN ACTIVE SIGNIFICANT MARKETS FOR OTHER SIGNIFICANT IDENTICAL OBSERVABLE UNOBSERVABLE ASSETS INPUTS INPUTS (LEVEL 1) (LEVEL 2) (LEVEL 3) TOTAL ------------- ----------- ------------ --------- $ $ $ $ DECEMBER 31, 2009 ---------------------- ASSETS Net unrealized gain on open contracts 1,313,616 57,082 n/a 1,370,698 Options purchased -- 87 n/a 87 DECEMBER 31, 2008 ---------------------- ASSETS Net unrealized gain on open contracts 2,853,299 56,088 n/a 2,909,387
SPECTRUM SELECT
UNADJUSTED QUOTED PRICES IN ACTIVE SIGNIFICANT MARKETS FOR OTHER SIGNIFICANT IDENTICAL OBSERVABLE UNOBSERVABLE ASSETS INPUTS INPUTS (LEVEL 1) (LEVEL 2) (LEVEL 3) TOTAL ------------- ----------- ------------ ---------- $ $ $ $ DECEMBER 31, 2009 ----------------- ASSETS Net unrealized gain (loss) on open contracts 12,929,342 (914,041) n/a 12,015,301 DECEMBER 31, 2008 ----------------- ASSETS Net unrealized gain(loss) on open contracts 27,202,139 (1,156,375) n/a 26,045,764
MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) SPECTRUM STRATEGIC
UNADJUSTED QUOTED PRICES IN ACTIVE SIGNIFICANT MARKETS FOR OTHER SIGNIFICANT IDENTICAL OBSERVABLE UNOBSERVABLE ASSETS INPUTS INPUTS (LEVEL 1) (LEVEL 2) (LEVEL 3) TOTAL ------------- ----------- ------------ ----------- $ $ $ $ DECEMBER 31, 2009 ------------------------- ASSETS Investment in BHM I, LLC -- 109,611,896 n/a 109,611,896 Net unrealized loss on open contracts (88,269) (147,728) n/a (235,997) Options purchased -- 3,483,054 n/a 3,483,054 LIABILITIES Options written -- 3,985,295 n/a 3,985,295 DECEMBER 31, 2008 ------------------------- ASSETS Investment in BHM I, LLC -- 90,392,390 n/a 90,392,390 Net unrealized gain on open contracts 1,271,965 732,699 n/a 2,004,664 Options purchased -- 790,178 n/a 790,178 LIABILITIES Options written -- 201,784 n/a 201,784
SPECTRUM TECHNICAL
UNADJUSTED QUOTED PRICES IN ACTIVE SIGNIFICANT MARKETS FOR OTHER SIGNIFICANT IDENTICAL OBSERVABLE UNOBSERVABLE ASSETS INPUTS INPUTS (LEVEL 1) (LEVEL 2) (LEVEL 3) TOTAL ------------- ----------- ------------ ---------- $ $ $ $ DECEMBER 31, 2009 - ------------------------------ ASSETS Net unrealized gain (loss) on open contracts 11,576,454 (880,783) n/a 10,695,671 Options purchased 2,023 183,374 n/a 185,397 LIABILITIES Options written 4,633 50,586 n/a 55,219 DECEMBER 31, 2008 - ------------------------------ ASSETS Net unrealized gain on open contracts 16,274,500 490,903 n/a 16,765,403 Options purchased -- 26,406 n/a 26,406 LIABILITIES Options written -- 150,636 n/a 150,636
MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) - -------------------------------------------------------------------------------- 10. FINANCIAL HIGHLIGHTS SPECTRUM CURRENCY
2009 2008 2007 -------- ------- -------- PER UNIT OPERATING PERFORMANCE: NET ASSET VALUE, JANUARY 1: $ 11.16 $ 9.84 $ 11.38 -------- ------- -------- NET OPERATING RESULTS: Interest Income 0.01 0.12 0.38 Expenses (0.71) (0.73) (0.72) Realized Profit (Loss)/(1)/ (0.42) 1.81 (0.73) Unrealized Profit (Loss) (0.01) 0.12 (0.47) -------- ------- -------- Net Income (Loss) (1.13) 1.32 (1.54) -------- ------- -------- NET ASSET VALUE, DECEMBER 31: $ 10.03 $ 11.16 $ 9.84 ======== ======= ======== FOR THE CALENDAR YEAR: RATIOS TO AVERAGE NET ASSETS: Net Investment Loss (6.7)% (5.9)% (3.2)% Expenses before Incentive Fees 6.8 % 6.7 % 6.8 % Expenses after Incentive Fees 6.8 % 7.1 % 6.8 % Net Income (Loss) (11.1)% 12.9 % (14.8)% TOTAL RETURN BEFORE INCENTIVE FEES (10.1)% 13.8 % (13.5)% TOTAL RETURN AFTER INCENTIVE FEES (10.1)% 13.4 % (13.5)% INCEPTION-TO-DATE RETURN 0.3 % COMPOUND ANNUALIZED RETURN 0.0 %
SPECTRUM GLOBAL BALANCED
2009 2008 2007 -------- ------- ------- PER UNIT OPERATING PERFORMANCE: NET ASSET VALUE, JANUARY 1: $ 17.50 $ 15.63 $ 15.60 -------- ------- ------- NET OPERATING RESULTS: Interest Income 0.02 0.22 0.71 Expenses (1.01) (1.36) (0.92) Realized Profit (Loss)/(1)/ (0.22) 2.04 0.34 Unrealized Profit (Loss) (1.06) 0.97 (0.10) -------- ------- ------- Net Income (Loss) (2.27) 1.87 0.03 -------- ------- ------- NET ASSET VALUE, DECEMBER 31: $ 15.23 $ 17.50 $ 15.63 ======== ======= ======= FOR THE CALENDAR YEAR: RATIOS TO AVERAGE NET ASSETS: Net Investment Loss (6.2)% (7.4)% (1.3)% Expenses before Incentive Fees 6.3 % 6.3 % 5.9 % Expenses after Incentive Fees 6.3 % 8.8 % 5.9 % Net Income (Loss) (14.8)% 10.7 % 0.1 % TOTAL RETURN BEFORE INCENTIVE FEES (13.0)% 14.5 % 0.2 % TOTAL RETURN AFTER INCENTIVE FEES (13.0)% 12.0 % 0.2 % INCEPTION-TO-DATE RETURN 52.3 % COMPOUND ANNUALIZED RETURN 2.8 %
MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) SPECTRUM SELECT
2009 2008 2007 -------- -------- ------- PER UNIT OPERATING PERFORMANCE: NET ASSET VALUE, JANUARY 1: $ 40.80 $ 31.24 $ 29.06 -------- -------- ------- NET OPERATING RESULTS: Interest Income 0.03 0.39 1.05 Expenses (3.27) (4.10) (2.59) Realized Profit/(1)/ 1.47 12.23 3.85 Unrealized Profit (Loss) (1.07) 1.04 (0.13) -------- -------- ------- Net Income (Loss) (2.84) 9.56 2.18 -------- -------- ------- NET ASSET VALUE, DECEMBER 31: $ 37.96 $ 40.80 $ 31.24 ======== ======== ======= FOR THE CALENDAR YEAR: RATIOS TO AVERAGE NET ASSETS: Net Investment Loss (8.6)% (10.2)% (5.3)% Expenses before Incentive Fees 8.5 % 8.3 % 8.6 % Expenses after Incentive Fees 8.7 % 11.3 % 8.8 % Net Income (Loss) (8.2)% 26.8 % 7.2 % TOTAL RETURN BEFORE INCENTIVE FEES (6.8)% 34.1 % 7.7 % TOTAL RETURN AFTER INCENTIVE FEES (7.0)% 30.6 % 7.5 % INCEPTION-TO-DATE RETURN 279.6 % COMPOUND ANNUALIZED RETURN 7.5 %
SPECTRUM STRATEGIC
2009 2008 2007 ------- ------- ------- PER UNIT OPERATING PERFORMANCE: NET ASSET VALUE, JANUARY 1: $ 18.82 $ 18.01 $ 17.15 ------- ------- ------- NET OPERATING RESULTS: Interest Income 0.01 0.20 0.61 Expenses (1.81) (1.90) (1.59) Realized Profit (Loss)/(1)/ (1.28) 0.95 2.41 Unrealized Profit (Loss) 3.39 1.56 (0.57) ------- ------- ------- Net Income 0.31 0.81 0.86 ------- ------- ------- NET ASSET VALUE, DECEMBER 31: $ 19.13 $ 18.82 $ 18.01 ======= ======= ======= FOR THE CALENDAR YEAR: RATIOS TO AVERAGE NET ASSETS: Net Investment Loss (9.9)% (9.3)% (5.6)% Expenses before Incentive Fees 9.0 % 8.7 % 8.7 % Expenses after Incentive Fees 10.0 % 10.4 % 9.1 % Net Income 1.0 % 4.6 % 4.9 % TOTAL RETURN BEFORE INCENTIVE FEES 2.6 % 6.2 % 5.3 % TOTAL RETURN AFTER INCENTIVE FEES 1.6 % 4.5 % 5.0 % INCEPTION-TO-DATE RETURN 91.3 % COMPOUND ANNUALIZED RETURN 4.4 %
MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (continued) SPECTRUM TECHNICAL
2009 2008 2007 -------- ------- -------- PER UNIT OPERATING PERFORMANCE: NET ASSET VALUE, JANUARY 1: $ 22.76 $ 20.22 $ 23.57 -------- ------- -------- NET OPERATING RESULTS: Interest Income 0.02 0.25 0.81 Expenses (1.75)+ (2.25) (2.08)* Realized Profit (Loss)/(1)/ (0.20) 4.33 (1.41) Unrealized Profit (Loss) (0.30) 0.21 (0.67) -------- ------- -------- Net Income (Loss) (2.23) 2.54 (3.35) -------- ------- -------- NET ASSET VALUE, DECEMBER 31: $ 20.53 $ 22.76 $ 20.22 ======== ======= ======== FOR THE CALENDAR YEAR: RATIOS TO AVERAGE NET ASSETS: Net Investment Loss (8.3)% (9.2)% (5.7)% Expenses before Incentive Fees 8.3 %++ 8.3 % 8.6 %** Expenses after Incentive Fees 8.4 %++ 10.4 % 9.4 %** Net Income (Loss) (11.1)% 12.1 % (15.1)% TOTAL RETURN BEFORE INCENTIVE FEES (9.8)% 14.8 % (13.4)% TOTAL RETURN AFTER INCENTIVE FEES (9.8)% 12.6 % (14.2)% INCEPTION-TO-DATE RETURN 105.3 % COMPOUND ANNUALIZED RETURN 4.9 %
* Expenses per Unit would have been $(2.12) had it not been for the management fee waived by Chesapeake. **Such percentage is after waiver of management fees. Chesapeake voluntarily waived a portion of the management fees (equal to 0.2% of the average net assets). + Expenses per Unit would have been $(1.77) had it not been for the management fee waived by Rotella. ++Such percentage is after waiver of management fees. Rotella voluntarily waived a portion of the management fees for the fourth quarter of 2009 (equal to 0.1% of the average net assets). (1)Realized Profit (Loss) is a balancing amount necessary to reconcile the change in Net Asset Value per Unit with the other per Unit information. - -------------------------------------------------------------------------------- 11. SUBSEQUENT EVENTS Effective January 1, 2010, the payment of the management fee to Rotella from Spectrum Technical was reinstated. Please see Note 6. Trading Advisors for further information. On February 19, 2010, Demeter notified FX Concepts that the Management Agreement dated as of October 9, 2007 and any amendments or revisions subsequently made thereto among Spectrum Currency, Demeter and FX Concepts, pursuant to which FX Concepts traded a portion of Spectrum Currency's assets in commodity interest contracts, would be terminated effective February 26, 2010. Consequently, FX Concepts ceased all commodity interest trading on behalf of Spectrum Currency effective February 26, 2010. On February 19, 2010, Demeter notified FX Concepts that the Management Agreement dated as of October 9, 2007 and any amendments or revisions subsequently made thereto among Spectrum Strategic, Demeter and FX Concepts, pursuant to which FX Concepts traded a portion of Spectrum Strategic's assets in commodity interest contracts, would be terminated effective February 26, 2010. Consequently, FX Concepts ceased all commodity interest trading on behalf of Spectrum Strategic effective February 26, 2010. MORGAN STANLEY SMITH BARNEY SPECTRUM SERIES (FORMERLY, MORGAN STANLEY SPECTRUM SERIES) NOTES TO FINANCIAL STATEMENTS (concluded) On March 1, 2010, Spectrum Strategic, Demeter and DKR entered into a management agreement pursuant to which, effective March 1, 2010, DKR would serve as a trading advisor of Spectrum Strategic and will trade its allocated portion of Spectrum Strategic's net assets pursuant to DKR Fusion Management's Quantitative Strategies 2X trading program. Effective March 12, 2010, Campbell, a trading advisor of Spectrum Technical, announced that, by mutual agreement, Chief Investment Officer Kevin Heerdt left the firm to pursue other interests. Going forward, management of the research and investment process at Campbell will be conducted by an Investment Committee chaired by Campbell's Vice Chairman Bruce Cleland. Other members of the Investment Committee will be Research Director, Xiaohua Hu, PhD, and Chief Operating Officer Will Andrews. PRE-SORTED FIRST CLASS MAIL U.S. POSTAGE PAID NEW BRUNSWICK, NJ PERMIT #1 Demeter Management LLC PO Box 340 New York, NY 10008-0340 [LOGO] ADDRESS SERVICE REQUESTED [GRAPHIC] printed on recycled paper -----END PRIVACY-ENHANCED MESSAGE-----